Cost of a War
This book should be a prescribed reading for all Americans, especially before the presidential elections. It explains with chilling facts how people in that country have been hoodwinked – and this despite their constitutional right to information. The authors are clearly anti-war and anti-Bush. But their political ideology apart, they say in the Preface, “Our goal was simple: to determine the true cost of the war. Regardless of whether one supported or opposed US actions in the region, we believed that voters had a right to know the real cost of our policies.” And they are eminently qualified to do so. Joseph E Stiglitz of Columbia University is the winner of the 2001 Nobel Prize in economics and Linda J Bilmes, a professor of public finance at Harvard’s Kennedy School of Government, is a former assistant secretary for management and budget in the US department of commerce.

Apart from its tragic human toll, the Iraq War will prove staggeringly expensive in financial terms. The numbers presented are as mind boggling as they are numbing. If you really want to know what the war will cost, where each of those costs is hidden and what those costs consist of, then this book is well worth the money. This book casts a spotlight on expenditure items that have been hitherto hidden from the US taxpayer, including big-ticket items like replacing military equipment (being used up at six times the peace-time rate) as well as the cost of caring for thousands of wounded veterans for the rest of their lives. With chilling precision, the authors measure what the US taxpayer’s money would have achieved had it been invested in social areas like education or on roads and research. The fact, of course, remains that funds that might have been freed up may not have been spent on such projects – given the political priorities. There have been predictable responses to this book. Those who oppose the war love it and those who support the Iraq War are displeased. One can see these responses in the many reviews that have been posted on the Net.

The problem I have with The Three Trillion Dollar War is not one of content but of emphasis. Only someone with the credentials of Stiglitz could have attempted calculating the cost to our planet. But unfortunately, he does not. He restricts the costs to the American people and the economy. Had he done a wider study, we would have known how the earth’s scarce resources were wasted on a war that perhaps enriched some of USA’s defence manufacturers but impoverished the world for all times to come. – Dr Nita Mukherjee

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    Costlier Shelter
    There have been five years of property boom in India. Rising income levels, changing demographics, cheap mortgages and a robust economic outlook had been fuelling the demand for housing. However, macro-economic fundamentals have changed in the past few months and the impact of this on the real estate market is increasingly becoming evident as we head towards more economic problems at least in the medium term.

    What has changed? Rising interest rates have been one of the prime factors negatively impacting the real estate sector. Sales have reportedly declined up to 70% in several markets and prices up to 20% in places like Gurgaon, Greater Noida, Ghaziabad and Kundli in the national capital region as well as in some Mumbai suburbs. Gagan Banga of Indiabulls, was recently quoted as saying, “Interest rate hike has dampened the sentiment in the real estate market, which will result in further slowdown. We see 5%-15% price correction in the real estate sector in the next few months, depending on the project and its location.” It is not just the real estate developers who are voicing concerns of a price correction. Keki Mistry, vice chairman of HDFC, told the media, he feels that prices across India may drop by as much as 15% in the coming months. Demand for loans, especially for housing, is likely to drop drastically, thanks to the central bank’s decision to hike interest rates in the face of a grim macro-economic situation.

    Prices of houses in some parts of Mumbai and New Delhi had more than doubled over the past two years making Mumbai the third most expensive location for rentals in Asia (and sixth worldwide), according to Knight Frank and ECA International’s accommodation survey done in April this year. Interest rates have been rising gradually through the past couple of years and the recent rate hike by the Reserve Bank of India (RBI) in the cash reserve ratio (CRR) as well as the repo rate by a steep 50 basis points to rein in prices and keep inflation under control is likely to discourage new borrowers from going ahead with planned purchases hitting the real estate market even further.

    This is as far as new borrowers are concerned. The scene is not all that good for even those with an existing mortgage. Existing borrowers of home loans with floating rates are likely to live with extended tenures or higher instalments. Moreover, the hike in repo rates is likely to suck out almost Rs20,000 crore from the banking system affecting credit supply. This is likely to put a brake on the speed at which banks have been lending to borrowers in these segments. Bankers have reportedly decided on a rate hike ranging from 50–100 basis points. PNB is likely to hike its prime lending rate by 50 basis points while the State Bank of India, the country’s largest bank, had hitherto refrained from raising rates but may not be able to hold them back for a long time. All this is likely to adversely affect the real estate sector which is already reeling under the pressure of price correction. Bankers are unanimous about the negative effect that the recent rate hikes are likely to have on the real estate market.

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    U Turn on Dstreet?
    1. Impact of rising crude and inflation. How much worse can it get?
    Saurabh Nanavati: Corporate margins will be down almost across the globe. I think, the market has factored in a portion of this but I think there is another 10% downside. The government has gone completely wrong on the policy front. If you take all the subsidies cumulatively, and the deficits at the state and the central level, you are looking at a fiscal deficit of 9%-10% which is serious. My biggest worry is that general elections are one year away, so you are not going to see the right policy steps and financial health may worsen. India runs the risk of getting downgraded like Vietnam – from the investment grade it enjoys now. If that happens, it will have a significant impact on the market. Tushar Pradhan: Rising crude price doesn’t affect the Indian market in any way. The impact is felt by the refining companies, which are made to sell products at a lower price. Also, each barrel is about 159 litres which means if you are paying Rs50 a litre at the pump, you are actually paying $200 a barrel. So where does the money go? To the government – in excise duty and sales tax. So, in totality, it does not hurt us. Coming to inflation: in India, inflation is weighted heavily by food. Food constituted around 40% of the rise in inflation. But the point about agriculture-based inflation is that, at best, it is a 12-month phenomenon. Higher prices in one year lead to higher production next year and prices fall. I think, this time we are expecting a record food grain production. We are placed in a very unique situation where the world is short of food grain because we did not sow enough – partly because in the West a subsidy is given not to plant! Next year, that will get corrected. However, in case of materials like minerals, iron ore or bauxite, the expansion in capacity or supplies doesn’t come quickly. The larger companies of the world have gone in for expansion and this supply will hit the market in a year or two. So I think it is a cycle which is peaking. Demand will also slow down, and it is already showing up in GM shutting down four plants and airlines reducing routes. Then you have to incorporate the speculative element in commodities. The minute this speculation starts unwinding, prices will go down sharply. People are talking about inflation because of its short-term impact. For example, a manufacturing company which has to provide for multi-quarter projects will say that in the first quarter they will not buy anything, which means there will be a lower top line growth and you will see the media saying that there is a slowdown. But that is temporary. The markets are very dynamic. Demand, supply and prices adjust quickly. So, while there is some slowdown now, it won’t last long. There is a noise in the market. If you look at FY07-08, most street expectations for the Sensex companies were between 15%-18% of earnings growth. The actual earnings for the 21 companies that have announced annual results so far were 21%. Sanjay Sinha: The concern comes not from the extent of the spike that we have seen until now but the uncertainty related to how long will these prices remain strong and whether there will be any moderation in the latter part of the year. This has created a serious current account deficit to deal with – at a time when the rupee has also depreciated. Plus, we do not have significant capital flows. The other problem is that the government chose not to resort to market-discovered prices of petroleum products. If they had done that, demand would have come down. But if you subsidise prices, obviously, demand will not be affected and prices will remain higher for longer. So it becomes a self-fulfilling cycle of inversion. I believe the decision to hike prices will moderate demand somewhat. I do not see a reason for crude prices to remain so strong for very long. This is for two reasons: (a) the fact that India and China have been growing strongly has now been known – not in this year but for the past three to four years. And (b) the Chinese and Indian economies collectively account for $ four trillion of GDP whereas the US accounts for $14 trillion; so I would not expect that the growth in these economies would not compensate for de-growth in the US economy. Fundamentally, these prices will not sustain and I expect them to start declining in the second half of 2008. We will probably have to live through a phase in which inflation would be high or commodity prices may be high.

    N Prasad: While rising crude prices and inflation are worries, the biggest worry for the market is the reluctance of the government to pass on the rise in fuel prices to the final consumer. This is leading to a fiscal deficit of 8%. India had this kind of fiscal deficit number in 2004. You know where the stock market was at that time. I do not think inflation is as much a worry as oil. All the sectors that are the cause of inflation today like steel, cement, real estate, etc, have moved up in the past two years which means the market anticipated it. While unmanageable inflation due to excessive demand and money growth is not welcome, I do not think India is at that level of inflation where it can cause excessive worry. Mihir Vora: Inflation is calculated on a YoY basis so, at some point of time, in the next 9-12 months, the base impact will start showing up and inflation will start declining. Equity markets discount the future and so the markets won’t go down too much because of this news alone. There may be other factors which can drive the market down but not necessarily crude oil and inflation.

    Madhusudan Kela: We have been bullish on the India story and the biggest risk factor which we highlighted is the crude price, to which India is very sensitive. Higher crude prices lead to higher subsidy, to higher borrowing by the government, higher interest rates and higher inflation – everything is linked. If the crude price goes to $150, obviously, sentiment will be bad and bottom-up ideas do not really work in that kind of environment. However, it is not an India-specific problem. It is starting to hurt the whole world – China, the US, Korea, etc. The impact is so well publicised that people are looking for options and how to cool it off. Also, this price is largely speculative. The total commodity exchange open interest in 2003 was something like $13 billion-$15 billion and that has gone up to $280 billion with a lot of money coming from pension funds and large institutions. This is a very small market, compared to equities. I think, what we saw in commodities was partially because of this speculative activity. Now this is something that is coming to the notice of all government agencies so I am hoping that, at some point of time, it will get curbed. I am hoping that the crude price will cool off and, if it drops to $100, we are fine. We will obviously be worse off than we were two years ago but, of course, all the fears about inflation and fiscal deficit will get dissipated.

    Ajay Bagga: We are concerned about commodity price-led inflation, huge subsidy burden on oil, fertiliser and food, high fiscal deficit and high current account deficit. It is a grim picture for the Indian and global markets and economies for the next two quarters. We expect a slowdown in the Indian economy’s growth rate and a lowering of corporate earnings growth rates, which will have an impact on valuations.

    2. A 9% growth rate is history. What is the 2009 expectation?
    Saurabh Nanavati: I am looking at a 7.5% growth rate. A 9% rate can be achieved over a longer period of time, but we need significant policy actions to achieve that. I see a lot of infrastructure projects getting delayed and reworked and that will also contribute to the growth rate going down. Of course, a 7.5% growth rate is not insignificant. We will still be in the top quartile, globally. The US is experiencing negative growth now. At 12% nominal growth (7% plus RBI’s targeted inflation rate of 5%), means that the more efficient companies will grow at 30%-40% which will mean an overall earnings growth of 16%-17% – that is very good from a global perspective. Psychologically, a slower GDP growth rate is a damper and you are seeing that. If you ask me what is the fair number for the Sensex, I would say 14,500-15,000 is fair, which means a PE multiple of around 13 at Rs1,000 EPS for the Sensex companies in FY08-09 and around Rs2,000 as embedded value. I have reduced the embedded value because, having come from the insurance industry, I know that insurance valuations are way out of whack; I would not attribute 3,000 points to that. However, the market does not behave in that manner. When it turns for the worse, it will go much below fair value.

    Tushar Pradhan: I don’t know why everybody gets worried about a 9% growth. When India’s GDP was growing at around 4%-5%, on an average, stock markets returned 18% compounded since 1979; that was not a problem. So, that 9% is not going to be achieved, is barely a problem. We are a trillion-dollar economy for which even a 7% growth is amazing. That alone will make us the second fastest-growing economy in the world among the larger countries. Also, I don’t think India’s GDP number really captures growth in this country. India is made up of 28 states. Are Bihar, Madhya Pradesh, Rajasthan, Uttaranchal or Chhattisgarh growing at 8%? I don’t think they are. Which means that the better states are growing at a much higher rate than 8%. I think, we just get caught up in this average number. All you have to do is to look around you. Today, if you are saying there is a slowdown, try and find an apartment or an office for yourself or a discount on a new car. These are signs of a slowdown. The government numbers are influenced by bias in collection and information gaps in our system. I am not a great fan of these numbers. India reports inflation on a weekly basis. Nobody else reports this. Are our systems so much better?

    Sanjay Sinha: In this year, yes, a 9% growth rate is definitely at risk but 7%-8% looks achievable. Once we have a more benign outlook, this entire vicious cycle actually turns into a virtuous cycle – commodity prices will come down, inflation will come down and, therefore, interest rates will come down, margins will expand and the economy will grow faster. So I have not given up on the 9% growth rate for the coming years.

    N Prasad: No, a 9% growth rate is not history. As per RBI estimates, it could be between 8%-8.5% in the current year and, I believe, it would be so. We have not yet seen demand erosion, though there could be margin erosion for companies. Our guess is that by 2010-11, GDP could be in double digits if agriculture does not disappoint. It is wrong to write off the story just because there is a lull for one or two years due to adjustments of supply and demand.

    Mihir Vora: We could get 7%-7.5% growth, for which valuations are attractive. Given the fact that we have a good RoE, corporates are still sitting on cash, they don’t have leveraged balance sheets; even households are not leveraged. So I think 7%-8% growth is positive for India even now. Madhusudan Kela: We should expect 7%-7.5%. But my worry is not 2009. What the whole world was playing for was India’s potential to grow 8%-9% for the next 10 years. And now there is a question mark there. Whether India can have high growth for the next 5-10 years will depend on where crude and other commodity prices go. If they continue to spiral up, growth will take a beating and that will get reflected in the stock markets. But, for the time being, I think the markets are more than adequately discounting the fears visible for the next one year.

    Ajay Bagga: There are positives as well, in terms of increased liquidity being given to the rural sector (higher minimum support prices and Rs71,000 crore of loan waivers) and urban segments (tax cuts and Sixth Pay Commission). The medium-term investment story is also very much intact. In this scenario, we expect around 8% real GDP growth rate for FY08-09.

    3. FIIs are selling continuously. When will they turn buyers and why?
    Saurabh Nanavati: If you put yourself in the FIIs’ shoes, firstly, the fundamentals have deteriorated and, secondly, the rupee has depreciated which was not anticipated by anybody at all. A sharp depreciation – of 5% in a month – will basically knock an FII’s portfolio out of shape, so they had to take corrective action and that is the reason they have sold. What will prompt FIIs to come back again will be appreciation of the rupee. But the bigger issue is: why should they come in now, when they are not clear about the policy actions and when fundamentals are weakening?

    Tushar Pradhan: FIIs are not one homogenous unit. In the last calendar year, they put in $16 billion net. This year, from January to now, they are net negative of $ four billion. What made them bring that much money last year? I don’t know. What made them take money off the table this year? I have no idea. But that is what drives the market. If we look at fundamentals, what they bought at last year was this year’s earnings at 20 times. What they are selling is 15 times, nine months forward. It doesn’t make any sense. But I am sure they have various reasons for doing what they are doing. They are witnessing a global growth scare and they are reducing their equity positions per se. This means they will reduce equity positions in any market. While India has lost almost $ four billion (net), Japan has lost around $14 billion and Korea has lost around $16 billion. I think, in Asia, they are net positive in Indonesia and Taiwan to some extent. I don’t think India is particularly hit because there is very little domestic participation and most of the drivers for the market always follow net FII numbers and that’s a sad fact. I was looking at the newspapers today and I saw so many bold numbers of stock prices and bold numbers here indicated 52-week lows. I think if you buy at 52-week lows, you would make money. Clearly, that is an opportunity.

    Sanjay Sinha: I think their selling is prompted by the fact that the global risk appetite has contracted and we will need to restore it for them to come back. They have sold 2% of their holding which is not so significant in percentage terms. I am not pessimistic that they will be away from the markets for too long. So, once the risk appetite is restored, I think, we will shine again.

    N Prasad: I think the twin deficits of fiscal and trade are a concern for any international investor. These deficits were not looking as ugly a couple of months ago as they are today. As these fears wane, which could be due to a combination of declining oil prices, pass-through of the oil price rise and of fertiliser prices, the rise in software exports, decline in non-oil imports and as capacity creation in India passes the hump, we should see FIIs coming back.

    Mihir Vora: India is one of the large emerging markets and what we have seen in the past few months is a shift away from markets like India and China which are net importers and large users of commodities, to markets like Brazil and Russia which are commodity producers and tend to benefit from higher prices. So, when India is down 30%, Brazil is up 7%. I think it’s a process of investors reacting to changing fundamentals and when commodity prices peak, we will see money coming back to these countries.

    Madhusudan Kela: FIIs are investors who are attached to returns. They are not here because they have a patriotic feeling for India or any other country. I think they are very clearly looking for better returns and there are countries which are benefiting out of rising crude or commodity prices. We have seen countries like Brazil and Russia doing exceedingly well compared to India and China in the past six to nine months. As soon as the macro environment improve; obviously, there is no problem in the India story and FIIs should logically come back. What is worrying them right now is the macro environment. You must not forget that India was a very fashionable market and lot of FIIs got into India in the past two years very aggressively. I would not even say that they are not selling aggressively as of now because what they have trimmed may be just 2%-3% of their total exposure.

    Ajay Bagga: Given the global risk aversion, credit crisis and inflationary expectations, it looks highly unlikely that foreign investors will take fresh exposures in commodity-importing Asian markets in a hurry. FIIs are not one block of homogenous investors; they range from endowments and pension funds with really long-term investment horizons to ‘long-only’ funds to leveraged momentum players who are very short-term in their investment horizon. The trigger for resumed inflows will be a global recovery in corporate earnings and stabilisation of India’s domestic macro economy.

    4. FIIs said they were long-term players and found the Indian growth story very attractive. What has changed?
    Saurabh Nanavati: Nothing has changed for them. India will figure more and more in their portfolios and their allocations in the next five years have to go up. However, the economic scenario is forcing them to withdraw funds and there is nothing wrong in that. They are far more long-term players than the normal retail investors. The retail Indian investor churns more than the average FII. India is an essential part of their portfolio but, in the current scenario, if I were in their shoes, even I would book profits.

    Tushar Pradhan: Nothing has changed for them. India has a market-cap of around $ one trillion, of which 40% or roughly $400 billion is owned by FIIs. For this, they have paid $65 billion. Of the market-cap of $400 billion, they have sold $ four billion, which is just 1%. But since it is $ four billion at the margin in a poor environment, it has caused a big change. But if you look at what they still hold, it is hardly anything. In fact, they can’t get out.

    Sanjay Sinha: It would not be correct to say that all the long-only funds have become negative on the country. FIIs will be of all varieties. There will be some who will be opportunistic in nature and they may be the first ones to sell in the event of emerging markets’ outlook turning slightly cautious. Secondly, the P-Note rules have been revised and they are to be made effective in the next 18 months, so some of the unwinding would also happen from those quarters. I feel that of the long-only investors, if 98% continue to be committed to India, that story remains intact. Also, the number of FIIs registered with SEBI has gone up to 1,400 from 1,100, so there is now far more participation by a larger number of investors.

    N Prasad: FIIs invested $36 billion from 2005 to 2007. In the current year, they withdrew about $ four billion which is 11% of their investment, not considering the appreciation. Howsoever long-term you are, I do not think there is anything wrong if you withdraw a portion of the investment in order to diversify, especially when you have made so much gain.

    Mihir Vora: What is long term? On the extremely conservative side, we have pension funds, endowment funds and sovereign funds which are hugely long term in nature. Then you have mutual funds, global emerging market funds which are like us, investing with a view of three-five years and then you have hedge funds which have a very short timeframe, say, three months. It is not necessary that all of them are selling.

    Madhusudan Kela: You are a long-term player till the time you have a huge conviction in fundamentals. But if your fundamental conviction itself gets shaken, then you cannot blame them. Subsidies on fertiliser, food and oil have also gone up five times. Obviously, things have deteriorated as far as macro fundamentals are concerned.

    Ajay Bagga: Even though a $ four billion outflow has occurred in the calendar year 2008, this represents a small portion of the total historical inflows and portfolio stock of FIIs in India. The trigger could have been de-leveraging elsewhere; it could have been the need to offset losses in other markets and redemptions by underlying investors. The positive is that only a very small portion of the total FII holding in India has flown out so far in a very bearish market. And the strong purchases by mutual funds and insurance companies have given some support to the markets.

    5. Are domestic mutual funds confused? They are neither buying nor selling.
    Saurabh Nanavati: , put yourself in their shoes. If they find that the market is overvalued by 10%, they will hold on and if everybody holds on and there is no buyer, the market falls further. But I think at levels below 16,000 they are buyers. If you combine insurance and mutual funds, they form a significant portion of the market.

    Tushar Pradhan: Mutual funds don’t have any option; nor do we have any discretion. Suppose we launch a new open-ended equity fund, we have to invest in equity as per the offer document. We are given a window of only three months after the NFO to invest, after which I have no choice. So if you are saying that mutual funds are not doing anything that is because we are not raising any money. The money that was raised is already invested.

    Sanjay Sinha: In the whole of 2007, they bought equities worth Rs6,700 crore and in the current calendar year, they have already bought more than Rs5,000 crore. Also, we have not had too many large NFOs, so this is obviously money which is coming into the existing funds from investors. There is now a structural change in the way the fund investors behave. In 2004 and 2006 we saw mutual fund investors either leave the market or become paralysed, but in the fall since January, we have seen them coming into equity funds which shows two things. One, that they are taking advantage of the fall in the market to increase their equity ownership; and, two, they are not coming for a short-term gain in the market; otherwise, they would have invested directly.

    N Prasad: In India, we have not reached a stage where investors invariably invest in equities as a discipline of asset allocation. And, as you know, long-term money – like pensions and provident funds – is still out-of-bounds for equity mutual funds. In the absence of these two critical supporting factors, Indian equity mutual funds have to ensure that there is enough liquidity to repay sudden surges of withdrawal. The inaction, if we call it that, in spite of net purchases of Rs1,500 crore this year, is due to this aspect.

    Mihir Vora: We are not confused. We have been actively churning sectors and stocks. Late last year, we started trimming exposure to infrastructure; later, we added IT, FMCG and also commodities. We have done a lot of changes in the past six-eight months. You don’t see mutual funds coming and buying vigorously because they are waiting for volatility to reduce. Mutual funds are sitting on cash, so I don’t think money is a problem. Even if inflows are not huge, there is no outflow from funds. It is just a question of trying to find the right stock at the right time.

    Madhusudan Kela: We have a very clear cut call. We have nearly $ one billion in cash, which has remained constant all through the decline. We are watching the fundamentals. There is no screaming reason for me to go and deploy all my cash today and that should not be seen as confusion. Till the time I see decisive signs of improvement in macro factors, there is no need for me to jump into the market just because I have cash. Anyway we are 80%-90% invested in the majority of our funds, so if the markets go up, we are going to make money.

    Ajay Bagga: Mutual funds have been net buyers of $1.5 billion this year. However, funds have been independent in their thinking and have realised this is a bottom-up stock-pickers’ market which will test and differentiate the mature, long-term value-picker from the momentum players who had surfed in the raging bull market of the past four years.

    6. What is the direction of the market over the short, medium and long term?
    Saurabh Nanavati: I am negative on the short term. I think there is going to be another 10% correction from here in the next three-six months. (The market fell sharply after the interview. – Editor) I am neutral on the medium term. You can look at a positive 10% from here, say, over a period of 12-18 months and 15% compounded rise over three-five years. When I say 15%, people don’t realise it is huge. It means doubling your money every five years.

    Tushar Pradhan: I think, there is no debate about the long term. The demographics, the infrastructure spend and the consumption story will create growth for the next 15 years. This means being in equities. That is the only view I have. I don’t have any short-term view. The intermediate view, which covers the next 12 to 18 months, is of volatility partly because the international situation continues to look gloomy. As an investor, if I have the money, I should be very excited about the intermediate term because I know what the long term is. But if I have already invested and don’t know what I am doing and I am worried about reduction in value, then I am lost. Being an equity investor, I think that the next few months will give us great opportunity to buy very good businesses at throwaway prices and that is how you make money. As long as you understand the opportunity, as long as you say that ‘look today at a company in India which has a 15-year future and is trading at a 52-week low’ you know what you have to do.

    Sanjay Sinha: Short term would be choppy; and, when I say short term, I mean the next three months. In the medium term, which would be the period between three months to 12 months, we would see the market once again coming back to its upward trajectory. Beyond 12 months, I would expect many of these clouds to clear and, therefore, the long-term picture is definitely more positive. N Prasad: We are positive on the medium to long term.

    Mihir Vora: In the next six months, I think, it will still remain volatile. This is because of all the uncertainties that we discussed earlier. But even during volatile times, there are stocks which have given you 10%–20%. Take the example of pharma, FMCG and other sectors which have done well. Beyond a point, I am not too obsessed with market levels. I would be more focused on specific stocks and sectors. If you look at a three-year or a five-year view, I don’t think there is any change in the India story. What is different about now and the early 1990s is that, earlier, capital used to be a constraint. Now, if you are willing to raise money at a reasonable price, there is money available and that is where the major difference is today. Between these two, I would rather not give any view.

    Madhusudan Kela: If you can tell me where the crude price is going, then I can answer this one. My short-term view is that the market would be range-bound. To get out of this range, you need a lot of air to be cleared at the macro level which does not look likely to happen soon. Then, we have elections at the end of the year. Medium to long term, we are hoping that just as a lot of commodities have corrected in the past one year, crude must also correct. It is a much-publicised problem now so some solution has to be found. Our market call is clearly linked to the macro-economics of India. If this story holds true, which we would come to know in the next two or three months, then obviously we are more inclined to invest. However, we are India-specific investors and always in search of good bottom-up ideas and we would buy wherever we find deep value. We are basically not waiting for crude to collapse. I think even if India grows at, say, 7% to 8% in the next five years, you will still find a lot of investors around the world being very excited about India because there are not too many markets in the world where you can find this kind of growth. The other part is, we are still a very small fraction of the world demand-supply of money; so, at the margin, I have no doubt in my mind that India is certainly one of the more promising developing markets.

    Ajay Bagga: Short term – range bound, volatile with low volumes. Medium term – some recovery in select stocks and sectors. Long term – extremely bullish.

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