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Monday, Oct 14, 2019

Time to tap our stock exchange goldmines

One win is enough to spread euphoria. A single loss triggers black despair. There simply is no middle ground, writes Ravi Srinivasan.

india Updated: Sep 26, 2007 20:29 IST
Ravi Srinivasan
Ravi Srinivasan
Hindustan Times

As a nation, we tend to be given to extreme mood swings. One win is enough to spread euphoria. A single loss triggers black despair. There simply is no middle ground.

Does anybody remember the mood after the World Cup? The other World Cup, the one we not only failed to win, but were unceremoniously dumped out of (ironically, with Pakistan for company!) just a few months ago?

I think not. A few months is a long time in India's public memory. It is difficult to believe now that exactly four months ago, police forces in Mumbai and Ahmedabad were on 'suicide alert', after the Sensex — yes, the very same Sensex which has raced ahead by 1,000 points in the last six days — had crashed by over 20 per cent in just two days.

In the process, we also often tend not to take notice of what is happening elsewhere. Take the markets, for instance. Yes, Indian bourses have rallied sharply. So have other markets. Asian markets have done very well, with the Hong Kong, Shanghai and Shenzen (which tracks the smaller yuan-denominated mainland China market) all hitting new highs in the recent past.

Western markets may not be doing as well, but it is an ill wind that blows nobody any good. The global turmoil unleashed by the US sub-prime meltdown has resulted in a record surge in trading, as investors worldwide have juggled their monies to try and hedge their risks. This has meant that the stock exchanges themselves are laughing all the way to the bank.

On Tuesday, the London Stock Exchange revised its earnings guidance for the current financial year ending March 31, 2008, and predicted an "excellent outcome" based on what it called "extreme market activity". Which is good news for anybody holding LSE Plc stock, since it is not only a corporatised entity, but a listed and traded one to boot!

In fact, stock exchanges themselves have become attractive takeover targets. Consider this: over the past four days, the LSE announced that it hopes to complete its takeover of the Milan stock exchange, Borsa Italiana, by October 1.

Meanwhile, the Qatar Investment Authority bought 20 per cent of LSE, only to find that rival emirate exchange Borse Dubai had managed to acquire 28 per cent in LSE, in a complex swap deal which gives control of the Nordic exchange OMX to US technology exchange Nasdaq in return for Nasdaq's LSE stake. Nasdaq's New York rival, the New York Stock Exchange, had already leapt the Atlantic last year by acquiring the French Euronext.

All this means that exchange valuations — especially in rapidly growing countries like India —— are going through the roof. We have only taken the first steps towards full corporatisation of our bourses. There is a 49 per cent cap on foreign direct investments in stock exchanges and a 23 per cent foreign institutional investment cap.

This gives the government a great opportunity to unlock the value of its investments in the stock market, and meet some of its disinvestments targets in the process.

While time in the market is important from an investment perspective, so is timing the market. Maybe now's a good time to cash in.

First Published: Sep 26, 2007 20:24 IST

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