Romancing the Sensex
What is this about heights that scares us? The fear is perhaps the result of prolonged life on terra firma. It took India’s premier stock index more than a decade to reach 10,000 from 1,000. But it has taken less than two years to cross the next 10,000. There is, however, more to the Sensex’s climb to 20,000 than pithy statements would suggest. In simple percentage terms, the journey from 10,000 to 20,000 is better compared with the journey from 1,000 to 2,000. But looking at it that way would be equally facile. There is much to be lauded and celebrated in the latest peak that the Sensex has touched. For one, this is blessed by a huge influx of portfolio investments from abroad, which is only a global vote of confidence in India’s economy and its long-term potential to sustain corporate earnings. Second, this marks the excess of something that India once considered precious and scarce. The Finance Minister’s admission that huge capital inflows are a problem only signals the 180-degree turn that the economy has taken in the eyes of the world.
Beyond that, quibbles and questions remain. We can measure the price of stocks that make up the Sensex in terms of valuations and say that on the basis of underlying earnings, the index may be a tad overpriced. We can wonder how only 6.2 per cent of India’s household savings of more than Rs 400,000 crore are deployed in stock markets, leaving millions of people outside the periphery of the boom. Nevertheless, the confidence that the new level of Sensex gives is something of a bonus that Indians need.
Given the long history of India’s poor self-image in engaging the global economy, the spurt in stocks could serve as a psychological booster dose. But it would be wise not to overdose on the heady highs of a 30-share index. Before memories of a prosperous Diwali fade, winter could usher in issues related to elections and coalition politics. Broadening the base of the economic boom and worrying about the consequences of a strong rupee that could erode export competitiveness or even threaten domestic industries will remain a concern for the government. As we raise a toast to the Sensex’s journey, it is wise to remember that 20,000 is a milestone — and not a destination.