India Today Group Online > Web Exclusive > Au ContrAiyar

Web Exclusive

	DAILY NEWS \| ASTROLOGY \| ARCHIVES \| INDIA TODAY \| HOME

V Shankar Aiyar

AU CONTRAIYAR
Wildebeest at Paradise Crossing

It is the most wondrous sight in the world. Every year in November with the onset of the wet season millions of animals arrive at Serengeti National Park and the Ngorongoro plains. More than a million wildebeest or white-bearded gnus, nearly 200,000 Burchell's zebras, over a quarter of a million Thomson's and Grant's gazelles as well as ostriches, eland, topi, hartebeest and the predators convert the short-grass plains-an area of over 25,000 sq km stretching between the Ngorongoro highlands and the Kenya/Tanzania border extending almost to Lake Victoria-into their habitat for the next six months, from November through May.

Come May with the onset of the dry season, the herds are left with little water or food to survive. The wildebeest raise their dignified but quaint heads, sniff the air and, as if by one accord, start the long trek to the Kenya border and the Masai Mara drawn by the sweet grass raised by the long rains of April and May. It is a spectacle that eyes feast on, lines and columns of wildebeest up to 40 km long, the dust and the sounds of hundreds of thousands of animals.

But the trek is costly. The herds draw ravening packs of predators, especially hyenas and lions, and thousands of the lame, laggard and sick never complete the cycle. More die, by drowning or by the teeth of the cunning crocodile, whilst trying to cross the swirling muddy waters of the Mara and Talek rivers. Once the Mara's grass has been devoured and when fresh rain in Tanzania has brought forth a new flush there, the herds turn south, heading hundreds of kilometres back to Serengeti and the Ngorongoro plains.

Sounds familiar? No? Consider the movement of the indices across the world over the last six months. More specifically from October:

** the Nasdaq composite rose from 2736.85 to 4914.79 on March 3 before slipping to 3219;

** the BSE Sensex from 4703 to 5933 in February to slip below 4000;

** the DJIA from 10273 to 11497 before slipping back to 10229; ** the FTSE from sub-5000 to 6738.5 to slide to 5994;

** the Hang Seng from 13700 in November to 18301 before it slipped back to the 13000 levels;

** the Nikkei which rose to 20833.21 has slipped to a new low of 16008.14 last week.

TO APPRECIATE the contiguity juxtapose the movement of any of the indices recorded above or any other not recorded above with the migratory pattern of the wildebeest and other animals sweeping into the Serengeti in November with the onset of the wet season and heading for Masai Mara in search of food and water in May at the onset of the dry season. That is, their rise from lower levels to new highs around February and March to their slide through April and specifically May. As with the animals who were led by the wildebeest-the most dominant herbivore, the markets too were led by the most dominant herbivores-the tech stocks.

AGAIN AS with the beasts it was clearly herd mentality to the fore and a near-complete absence of rationale. After all even if one accepts the assumption of "potential earnings" was the quantum leap in levels (30 per cent and above in Nasdaq and over 40 per cent in the Sensex) matched by a quantum leap in revenues or profits to justify the valuations? Pause and look back at the great rush invited by discount.com, lastminute.com. Even those with a shade of tech made it to the buy list. Toyota recorded a PE of 40 over Honda's 28 on the Nikkei simply because it had a website. In India, stocks of RIL and HLL rose simply on news of their connecting consumers through computers.

AND AS tech stocks' valuations rose every index was presented with a fait accompli. Inclusion of a higher number of tech stocks and a consequent rise in indices. Even the venerable Dow was forced to replace old favourites like Chevron and Union Carbide with Intel and Microsoft (essentially products of Nasdaq) taking it to its January high. Forget the other markets. Consider the rise of Indian tech stocks and the vaccousness. Through December, January and February there were only buyers on the counters of Zee and Wipro taking the stock prices up to Rs 1,620 and Rs 9800. Less than eight weeks later there are only sellers taking the stocks down by 80 per cent and more to levels of Rs 400 and Rs 1,700.

NOW FACTOR the distorted demand supply equation. Naturally, as with any new mania demand outstripped supply. More so because as the herds stampede there is little scope for contrarian thought as the risk of being trampled. So even those fund managers who questioned the valuations were forced to pay obeisance to the reigning deity. Not without consequences.

According to Morgan Stanley, last year a 21 per cent rise in the S&P 500 was propelled by a mere 31 shares. In 1998, when the S&P rose by a similar amount, its growth was delivered by 89 companies; and in 1996, a similar rise came from 216.

BACK HOME on Dalal Street, the weightage of tech stocks rose from sub-20 per cent to over 40 per cent and less than half dozen stocks took the 30-scrip Sensex on a merry roller-coaster ride though not as vicious a ride as for those who rode the Nasdaq 100. While in November analysts were busy standing every known economic rationale-for instance, growth comes from revenue and profits--on its head to justify the valuations, towards the end of April they were busy putting logic back on its feet to justify the fall. Even in this investors were not spared of the herd mentality.

WILDEBEEST AND other animals who transit through the famous Paradise Crossing to cross the treacherous Mara and Talek rivers onto the highlands have to pass the toughest test authored by Charles Darwin and often get devoured by predators. The fate of investors was not very different. And will not be different. Be it in India, or the hallowed portals of capitalism in the US there is a clear call for questioning the reigning rationale, for skepticism, for contrarian thought.

Come October, the herds will yet again make the crossing to short grass plains. Darwin's theory requires evolution-both of the body and the mind-to survive. As deigned by the doctor only those species who evolve will survive. The rule holds as true for markets as it does for the denizens of Serengeti.

(V Shankar Aiyar is Associate Editor with INDIA TODAY. He is based in Mumbai. Write to V Shankar Aiyar.)

Top

Chat transcripts

Mail this to a friend
Archives