#009 WHY DO SHARE MARKETS PRAISE THEMSELVES AND BLAME OTHERS?

The Indian Stock Markets cry on and cry off. When they cry off, they quote the reason "GLOBAL SUB PRIME LOAN CONTAGION" .

This is just passing on the blame to somebody else.

--Withdrawal of funds by foreign investors by selling scrips, because they require them to fill their losses in the Sub-Prime Loan sector.
--As if the sub prime market loans are the exclusive preserve of only the American institutions. Financial institutions all over the world including Europe and India have sub-prime market loans. Globally, losses take place quite naturally.

In India also, the position is not different. Indian Banks classify their large industrial and trade loans as prime, as per their custom. Their losses in the large trade and industrial portfolio could be quite significant, albeit they may be undiclosed. For the same reason they shifted to retail personal lending, particularly in Housing Sector. But the Banks which lent heavily to housing should face the problem of inflated estate prices. The inflated prices of house-plots and flats is a viscious circle and bank funds could be locked up when the borrowers fail to pay because rental incomes are low and there may be nobody to buy finished houses/flats owing to high registration fees and taxes. Besides, Indians blindly believe in vastu (pronounced vaastu - a concept that a house plan can give auspicious results depending on size dimensions and directions of rooms, amenities like fire, toilet, water, dust bin etc.)and do not prefer second hand properties as they rarely match the vastu needs, unless the properties are sold at extremely low prices in relation to market. Hence there is a danger of bad and doubtful debts, whenever lending is made at inflated prices, notwithstanding the spiralling increase in real estate values. However, the retail house loans are better than industrial loans in terms of quality of recoveries. In case of industrial loans, particularly the working capital loans, the repayments are only book adjustments made by enhancement of loan limits. In a strict sense, they are never recovered. Even term loans can be shown as recovered by granting fresh working capital advances and adjusting a part of it towards servicing the term debt.

Indian Stock markets should, therefore, try to stand on their domestic legs rather than clamoring for foreign buyers and investors. Indian investors both small and large, should learn to invest for dividends. By forming associations they have to participate actively in the management of the Companies, sending their representatives to the Board of Directors. They should not become buyers and sellers of sameday type . By becoming oneday investors for a Company, they will be behaving like those visiting brothel houses. Modern customers and prostitutes do not have lasting relationships. It is the bane of Indian Stock Markets.

ADDED ON OCT. 21, 2009
Markets are glowing now. They take the credit for themselves. Of course, the Government also will claim credit for its policy initiatives.