Friday, October 12, 2007

Life Beyond Indian Stock Markets

Wherever you go, invariably you hear about the booming Indian Stock markets and the Index reaching 20k, 25k, 30 or so. People advise investing in MFs, Index Funds, scrips and so on, believing in the fundamental premise that over a long run, the stock markets always appreciate. I do not know whether it is a bubble yet in India, but even if it isn't, an Economist story tells interesting facts:

".. it is almost universally accepted that shares always rise over the long run. And this perception does seem to be backed up by evidence; if you take any 20-year period, Wall Street has always delivered positive real returns. In addition, one ought to expect shares (which are risky) to deliver a higher return than risk-free assets such as government bonds.

Nevertheless, investors ought also to remember the world's second largest economy, Japan. Its most popular stockmarket average, the Nikkei 225, peaked at 38,915 on the last trading day of the 1980s; this week, nearly 18 years later, it was still only around 17,000, less than half its peak. Buying on the dips did not work either. By 1994, the Nikkei had fallen to 21,000—at which point a technical analyst, after poring over his charts, told this columnist that it had to be one of the great long-term buying opportunities."


"Japanese, French, German and Spanish investors all suffered instances where they had to wait 50-60 years to earn a positive real return; in Italy and Belgium, the waiting period stretched to 70 years. It was no good following the famous advice to “put the shares in a drawer and forget about them”; the furniture would not have lasted that long."

If one feels FIIs are pushing up the prices of India stocks, sample this:
"Rulers and Ruled in the US Empire"
which says, among other things:

"Petras demystifies FI's impact, explains the risks in attracting it, and exposes six myths about its benefits.

Myth 1.

It's untrue FI creates new enterprises, market opportunities and more. Most, in fact, aims to buy privatized and other enterprises while crowding out local capital and public initiative.

Myth 2.

FI doesn't increase export competitiveness. It buys mineral resources for export with little done to create jobs or stimulate the local economy.

Myth 3.

It's false to think FI provides tax revenue and hard currency. An FI export model creates more indebtedness and a net loss.

Myth 4.

It's false believing debt repayments to international lenders is key to a good financial standing. Much foreign debt is odious and repaying it harms borrower countries.

Myth 5.

It's false believing FI provides developing countries needed capital. It's used instead to buy local companies and control a country's markets.

Myth 6.

It's false believing FI attracts further investment. Capital freely moves to wherever it gets the best returns and is anchored nowhere.

Developing countries benefit most by relying less on FI and more on national ownership and investment. The former is predatory. The latter accrues profits to the national treasury and grows the country's economy."


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