The general public should start behaving like capitalists. The idea of investing is to make money; other stuff like doing good for the nation, etc, can come later.
A foreign institutional investor (FII) investing in the Indian markets does not care two hoots about India; he cares about the returns he can get. If the returns he gets are good, he will invest more, and if returns are poor, he will pull out money. Investors should think the same way. Put in money when return expectations are high and pull out money when return expectations are low.
Investing is a capitalist activity. Investors behaving like capitalists will actually lead to highly efficient markets where managements delivering returns will benefit and managements not delivering returns will suffer. Trying to fight boardroom battles, protesting in shareholder meetings or “occupy” campaigns will not help.
India is going to get its chapter of Occupy Wall Street with an ‘Occupy Dalal Street’ campaign starting Friday, 4 November 2011. The Indian edition of the campaign has political overtones as the sponsor is the CPI (Communist Party of India). The end result of Occupy Wall Street is unclear, as the protestors do not have definitive demands.
Occupy Dalal Street will, in all probability, not add any value whatsoever for the general public and will, in fact, cause more disruptions in the already disrupted city of Mumbai.
The underlying frustration across the world is clear. The bankers and corporate bigwigs are getting away despite causing great upheavals in financial markets that are threatening to wipe out economies while the public bears the burden of the aftermath.
Central banks, from the US Federal Reserve to the Bank of England, have bailed out large banks with taxpayers’ money and there is nothing to show for it except a weakening economy and job losses. Post the 2008 credit crisis, economic growth forecasts for the globe have been cut by half a percentage point for calendar year 2012 by the IMF. US unemployment is at 9.1 percent — way above the 5 percent rate seen in January 2008.
In India, inflation is running at close to double-digit levels over the last one year and has hit the common man hard, while investors are living with an equity market that has not recovered since the bubble burst at peaks of 21,000 on the Sensex in late 2007 and early 2008. The general public is seeing huge amounts of wealth being amassed through corruption in telecom spectrum auctions, mining and real estate. There is definitely a case for anger among the public.
Public rage cannot, however, be addressed through a campaign against any so-called capitalist institution such as the BSE (Bombay Stock Exchange). In fact the BSE has been swamped by the government-owned NSE (National Stock Exchange), which dominates trading volumes in equity, commodity and currency markets.
The protest should actually be held outside the NSE, but NSE is an electronic exchange and hence protesters, instead of baking in the heat and dust of BKC (Bandra Kurla Complex) where the NSE is headquartered, should launch online campaigns in Facebook and Twitter and other social networking sites.
The BSE and NSE are doing their jobs in facilitating trading in various asset classes. Standing or sitting outside a stock exchange will not get protestors anywhere. Capitalism looks to optimise profits by allocating resources in the best possible manner. In trying to maximise profits, some or many of them stray and do illegal things, which cause distress to the public. That leads to protests such as Occupy Wall Street that leads nowhere.
The public, too, must share responsibility. As long as the going is good (read: equity and property markets are rising), the public is silent. The public resents losing money in markets, which are inherently risky, and in the process lose other comforts as well. If the public had exhibited caution in rising, overheated markets, market upheavals will not occur.
Arjun Parthasarathy is the Editor of www.investorsareidiots.com, a web site for investors.