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The sun shines on green shoots

By Govindraj Ethiraj
April 29, 2009 18:20 IST
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The way everyone is talking about green shoots, you might think there is a nationwide gardening competition on. But then, unusual situations create unusual terms -- remember the entire mortgage-triggered global meltdown is now classified as a non-linear event, so there is no past or future. In effect, most, if not all, sins forgiven. 

So green shoots erupting from bamboo trees (or wherever they usually grow) and a stock market that has looked up somewhat -- all must signal something.

By the way, Federal Reserve chairman Ben Bernanke said while the banking and financial systems will need to stabilise first, at the moment he is seeing "green shoots". About time, considering all the fertiliser scattered around.

Youssef Boutros Ghali, who chairs the IMF's steering panel, suggested last week a 'break in the clouds'. To be precise, he said, "Carefully, cautiously, we can say there is a break in the clouds." Struck me that If I look up at the sky, either there is a break in the clouds or not. How can I be careful and cautious about it. Different story though.

Legendary private equity investor and KKR co-founder Henry R Kravis said he saw rays of sunshine in a breakfast meeting with some of us media folks on Monday morning in Mumbai.

This was at 8.30 am or thereabouts so he could not have been kidding. He saw clear signs of thawing in the financial markets and deals beginning to happen. Like it's happening in India -- don't forget Tech Mahindra's close to Rs 3,000 crore buy of Satyam Computer.

And how could you ignore the fact that the BSE Sensex leapt over 3,000 points in five weeks starting March 9 to 11,329 on Friday last week? And maybe it will continue its delightful ascent, maybe it won't. 

I continue to meet with people who say, "Well, it seems tough out there," and gaze at me intently to see if I differ or agree.

I say, "Yes perhaps, but I get the sense that there is some stirring, people are walking on the bottom now and looking up before they commence ascent." And all of that. "You are right," I am told. Well, it didn't sound like that a moment ago. But then that's how it is.

If indeed there is a stirring deep within the bowels of India Inc -- don't get me wrong here, I know of companies who have let go of staff last week -- it's for two reasons. First, demand has noticeably picked up, from whatever sad levels it had crashed to.

For example, even in March, companies like Tata Motors were saying sales were rising after the devastating November-December-January period. Same story for steel, cement despatches.

Second and more significantly, companies and the entrepreneurs driving them are getting restless. After six months of being in near deep freeze mode, they want to get out there and do something. Like bring back activity to levels which would correspond to a 5 per cent growth figure I guess, not at zero or sub-zero per cent growth as, we all know, India is still growing.

Guess what, even money managers are gripped by the same restlessness. There is another reason. As an investor in a mutual fund, for instance, I pay the fund manager to go out there and make my money work, not shiver in fright on his desk or adjourn to nightly (of late advanced to evening) rounds of chilled beers at Geoffreys', the pub on Marine Drive.

Now comes another point. If there are indeed those silver linings, green shoots and golden rays of light, which in turn might cause a small global upturn, then what must we do, among other things, about all those monetary and fiscal stimuli packages that we were, well, packaging?

I asked Reserve Bank governor D Subbarao last week whether he thought lower interest rates from here on were necessary for growth. Since by his own, and others', acknowledgement, growth was dependent on confidence as well.

He said a straightforward yes. By the way, I am not sure his predecessor, regardless of external circumstances, would have said the same.

But then Y V Reddy spoke a lot and said very little in any case. What he did say, you had to strain to follow because he ran rings around you. He usually concluded with a merry, wicked laugh because he knew he had succeeded in befuddling his listeners.

I also asked the governor whether he was under pressure from sectors like real estate to reduce prices. Dr Subbarao's response was that all industry sections represented to the RBI and it was their job to listen carefully. Though not necessarily to respond every time.

The general view is that the RBI is keeping some room open to play with the current interest rate architecture, in anticipation of a new government coming in. And the possibility that it may not have an Oxbridge-educated, ex-central bank governor at the helm, I would add. I am sure you are thinking of the same potential contrast I am thinking of.

The simple limited argument is that don't meddle with interest rates if there is no need to. Because low interest rates can create precisely the problem we want to avoid.

And have people buying third and fourth homes which, in any case, the builders have not built because they did not have permissions in the first place. Nor do you really need more stimulus packages in India, not at the cost of crippling government finances at least.

More importantly, a few more quarters of frugal living ain't gonna kill us. Ask anyone and they will tell you that the availability of capital is of greater concern than the rate at which it's offered. And the froth that bubbled up thanks to half a decade of merry-making has not fizzled out as yet. It must -- like real estate prices which are still 300 per cent over 2004 levels.

Meanwhile, keep watching out for the sunshine that is breaking through the clouds and whose rays will nurture the green shoots. . . obviously with cautious optimism.

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Govindraj Ethiraj
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