I have always maintained that in the short term, stock markets are irrational. But yesterday’s 1,744 point, 9 per cent fall foxed even the most hardened among us. That the fall would come was expected, my rounded range was between 600 and 900 points. When the fall is double to triple of one’s estimate, it’s time to bow your head before the Lord of Volatility — the market itself — and exit as gracefully as you can. Just as I was doing that, the market changed direction and finally closed a statistically insignificant 336 points lower. Phew, what a day!Volatile Wednesday lashed out in a fury unseen in recent times. The fear that dollars, which have been the driving force behind taking the Sensex to over 19,000 with expectations of realms beyond, would stop flowing and maybe even exit the Indian market have been proved wrong. That was expected, since — and at the risk of repeating myself — the India story remains unchanged and if short-term numbers are to be seen, is moving towards a better expectation level.The first bunch of 150 corporate results that have come out indicate a 24 per cent rise in topline and 40 per cent growth in bottomline (the line that really matters). If this indication becomes a trend for the 30 companies comprising the Sensex, we’re looking at a market that’s offering a 40 per cent growth that’s available at a PE of 25. Use any discounting or growth-valuation ratio, and it’s attractive in absolute terms. That is, if you were to look at the Sensex in isolation, it is investment-worthy.But even in relative terms, the Sensex retains its charm. How many significant democracies do you know which are growing at 9 per cent, whose companies have been consistently growing at 24-36 per cent for most of the past 20 quarters, and are investing in infrastructure at this pace? Add a strengthening currency to that and ask yourself this question: if you had the world to invest in, as you do if you can spare $200,000 of risk money, which country would you go to?What is a clear answer to all of us is somewhat hazy to regulators and the Government. So, if the rupee is strengthening, it must be weakened otherwise our exports will suffer - the results of technology companies bear witness to that. So, clamp down on external commercial borrowings and if that doesn’t work (as was expected), blow the participatory notes alarm all over again and bring down restrictions there. They want to “moderate”, restrict, control capital inflows believing that they still have the power to do so. “Come through the front door,” said Sebi chairman M Damodaran.Well, guess what? The FIIs will come through the front door. The regulator has made it difficult for them to register, but come they still will. The India story stands strong and has a lot of steam yet. The increased spending on infrastructure, a figure that has jumped from a little over $300 billion to a little under $600 billion in a matter of months, will fuel it in the medium term. The efficiencies that other companies will get through shorter turnaround time or faster movement of goods will show up next.That happens every time a country invests in multipliers and it is happening in India today and will continue for another five to eight years through building of primary infrastructure of roads, ports, railways, SEZs, airports and so on. The productivity gains for the country from this investment will accrue over the next 12-15 years, maybe more. Which profit-seeking entity, FIIs included, won’t invest in this country today?The holes in the PN route must be plugged, but to exclude a participant from a market would be futile.Now, in the short term, nobody, repeat nobody, can predict the direction of the market. The Indian market in particular. If investors can take a 1,000 point rise in four days in stride, they will have to learn to live with a 1,000 point intra-day volatility as well, for it’s on its way. Ascribing motives to this market is futile — it has virtually ignored political uncertainty, and has digested the PN restriction and the resultant uncertainty pretty fast. You can safely expect far more uncertainty going forward.Doomsayers looking for a correction have been disappointed so far — they’ve been looking for it since Sensex 9,000 and the intensity of that search has only multiplied at Sensex 19,000. That is not to say that the Sensex will rise tomorrow. But as long as the big picture on the Indian economy is clear and as long as you know that the market is efficient in the long term, there isn’t much to worry about.Yesterday’s volatile Wednesday was one such reminder.
