Dreams that you dare to dream

Dreams that you dare to dream: the relevance of the Indian Stock Market

“Somewhere over the rainbow, skies are blue, and the dreams that you dare to dream really do come true,”

Lyman Frank Baum (1856-1919) in The Wizard of OZ

Upendra Kachru reveals in his recent book Extreme Turbulence: India at the Crossroads, (Harper Collins), that only one publicly traded private sector company in the 1970s “top ten”, based on market capitalisation, figures on his 2005 list. The sole survivor is Tata Steel, then at No.1 and in 2005, before its audacious Corus acquisition, at No. 7. Public sector navratnas such as ONGC, Indian Oil, SAIL, GAIL and BHEL were not traded at all in the 70s. Reliance Industries wasn’t on the first list either but is seen at No.1 in 2005.

This is not surprising when you acknowledge that the first dreamer of waking dreams about the Indian Stock Market, and the most successful of them all, was, in effect, Dhirubhai Ambani. When he first tapped it, you had to be rich and powerful in the first place to obtain bank financing. Dhirubhai turned to the general public instead to realise his vision. And with his mass market manoeuvres and daring innovations to attract shareholder wealth, a sea change in the reach and dynamics of our bourses came about. The phenomenon has since been referred to as the “cult of equity”.

It is a pity therefore, that even in 2008, only some 6% of India’s billion plus population, is in any manner or form associated with the stock market. But, there may be consolation in the fact that this figure has risen, from an even more pathetic less than 3%! Compare this with 48% or so of stock market participants in the US and you start to realise why their market capitalisation is at USD 23 trillion.

And yet, the goings on of the Indian stock market sustains two full time English TV channels and one prominent Hindi one. In addition, all our pink dailies and nearly every broadsheet, tabloid, magazine and general news TV channel, in several national languages, allocates a significant amount of time and space to the bourses on a daily basis.

Besides, percentages do not reveal as much as they conceal. It has already become an item of popular culture that Dhirubhai Ambani not only succeeded in attracting the investment of millions of ordinary investors, but, for the first time in the Indian experience, turned lakhs of them into millionaires; just like he said he would.

Ambani created investor confidence of unprecedented magnitude. The latest posthumous manifestation of the adoration his name evokes in the investor community albeit bolstered in 2008 by institutional investors, mutual funds, insurance companies and so on, was during the Reliance Power IPO last month. The flotation, by the late Dhirubhai’s younger son Anil, was a frenzied phenomenon. Anil, without taking anything away from his own considerable business acumen, wanted an impressive Rs. 11,700 crores, (about USD 3 billion), making it the biggest ever primary market issue in the history of the Indian Stock Market. But he received as much within a minute or two of gates open. By the time he pulled down the shutters, the over-subscription ran to a whopping Rs. 7.52 lakh crores or USD 188 billion! Compare this flood tide of money, raised in a jiffy, with the entire, and let it be said, enhanced, and unprecedented, foreign financial investment (FII) for the whole of 2007, which stood at some USD 17 billion.

And as India keeps growing her “real” economy at 8% plus rates year-on-year, and is expected to do so for the next decade or more, the capitalisation in the stock markets, which currently matches the gross domestic product (GDP) one is to one, at USD 1 trillion, is slated to double in the next five years.

Official India too, has over the last few years, been encouraging, by making investment in equity virtually Income Tax free except in the short term, defined as less than a year. But even then, it contents itself with a flat 10% on the profits realised.

Aggregating all these taxation related bells and whistles, the relentless increase in the number, style and substance of financial assets under management (AUM), backed by the great Indian domestic savings rate, one of the highest in the world, hovering at over 30%; it is only a matter of time before the stock market participation assumes centre stage. All we have to do, millions more of us, is dare to dream like the Ambanis.


(750 words)

By Gautam Mukherjee
Friday 01 February 2008

Also published in The Sunday Pioneer on 3rd February 2008 in AGENDA section DIALOGUE As "Helps us dream big".