“I am concerned because the bullish sentiment is running at a very high level and portfolio managers for every asset class?be it stocks, bonds, commodities, gold and art?are bullish. One of them has to give up??, investment guru and author of Gloom, Boom and Doom Mark Faber said in Mumbai recently. No one, including the Finance Minister P Chidambaram knows, when one of those portfolio managers which Faber talked about, is going to give up. So everyone is partying at the Sensex touching the 10,000 mark.
Analysts, including a well-known economist and former editor of a pink paper compared the Sensex surge with the Dow Jones Industrial Average. He reeled out numbers to show how the Sensex has beaten the Dow Jones Industrial Average despite the fact that the Leftists are breathing down the neck of the Manmohan Singh Government. Full marks to Prime Minister Dr Manmohan Singh and his economic managers like Chidambaram and the Planning Commission Deputy Chairman, Montek Singh Ahluwalia!
?Indian private businesses have thrived successfully despite a horrendous government which has done very little??, this is not what any of the Opposition parties in the country is saying. This is what was stated by Faber in Mumbai.
Interestingly, can it be just a coincidence that the government releases the advance estimates of the Gross Domestic Product (GDP) growth for the full fiscal 2005-06 a day after the market touches a dizzy height. The numbers released appropriately to add further to the appetite of the investors. The figures project the GDP growth at 8.1 per cent, an improvement over the estimates of the Reserve Bank of India and the earlier projections done by the government, including from Prime Minister Dr Manmohan Singh.
In a way, the GDP rate flaunted by the Finance Minister, would work as the perfect feed for share market investors who say, they are still hungry and would like the Sensex to touch the 12,000 and even the 15,000 mark. Would anyone tell them that the way forward is fraught with risks which could be fatal for the increasingly tendency of the middle class to even borrow and invest in excessively expensive asset?be it stock market, gold or property.
The appetite for the real estate market is even greater. Everybody who owns a one or two bed-room flat in Delhi, Mumbai or Bangalore is quite happy discussing all the time the market value of his house. It feels quite nice when somebody quotes a Rs 50 lakh or Rs 60 lakh for the flat that you live in. But with the kind of ?asset-inflation? that is prevailing in the real estate market, there is enough reason for the middle class to worry. Would their children be able to earn as much as to buy a small house in any of the big cities. If one has to borrow Rs 40 lakh to buy a Rs 50 lakh flat, the equated monthly installment would be something like Rs 40,000. That means the person borrowing that much money should be earning in excess of Rs 60,000 to Rs 70,000 per month. How many of us earn that kind of money and do all of us expect our children to join the elitist IIMs and earn those obscene level of salaries.
At this pace, there would be more slums as the bulk of the
population would not be able to afford those Rs 50 lakh plus flats. Would the Gloom, Boom and Doom circle as illustrated by Faber come full circle? Signals from the US market where the housing prices, aided by low interest rates and sub-zero saving rate have touched dangerous levels, indicate that the party seems to be over. But then, it is the herd mentality which prevails in the markets. Those who manage to stay away from the herd would remain safe. For others, the answer lies with Shri P. Chidambaram!