Market intervention

The campaign for the state to step in to erase inequality can end up disturbing the demand-supply equilibrium

By Mohan Sule

Three recent controversies capture the essence of the tussle between state intervention and market forces. They raise important issues about the extent of freedom various stakeholders should enjoy. Take the 10th anniversary of the launch of the rural employment guarantee scheme. It provided an opportunity to revisit the need for the flagship project of the UPA government Soon after propelling to power, Prime Minister Narendra Modi credited the existence of the scheme to the failure of the socialistic policies of the Congress government. The NDA government pared allocation in the first year but increased it subsequently. Two years of successive deficient southwest monsoon perhaps contributed to the reckoning of its importance. Congress saw in the step-back a vindication of its pro-rural policies.The real reason perhaps is slightly different. The wages boosted the purchasing power of the agri-related population, leading to increased consumption of consumer durables and non-durables. In turn, the shareholders of these companies got enriched, bolstering economic growth.With the spigot turned off, this important constituency has shown withdrawal symptoms, affecting the top line and bottom line of a host of industries. The inescapable conclusion is that the money doled out was in effect a fiscal stimulus as no productive assets were being created. The Modi government is trying to correct the anomaly. What remains unsaid is that the GDP growth since the implementation of the scheme is a suspect. The cash infusion under the guise of the social welfare scheme might have contributed in a major fashion to the resultant food inflation that has left the central bank frustrated.

Even as introspection of the so-called success of the rural social program was under way, the cyber space was exploding with another battle. At stake was the ability to roam the Internet without barriers. Leading the attack were welloff net users, deploring attempts by services providers to offer free access to selective data. The tie-ups were viewed as a win-win deal by the ISPs and the content providers. Due to the policy shift against the backdrop of giveaways to cronies by the previous regime, all spectrum is now auctioned. The run-up in cost to bag circles was sought to be blunted by attracting more subscribers from the hinterland with the offer of free visits to certain sites. The developers, in turn, were aggressively promoting the scheme to get more eyeballs and, thereby, revenues. E-commerce sites are able to offer deep discounts due to supply agreements with manufacturers. What is perfectly okay for one set of players was criticized as an attack on restriction-free surfing of the net. At the forefront of the campaign were promoters of startups who had benefited from network connectivity to showcase their talent. They now feared established players’ edge in seeking collaboration with ISPs. The Telecom Regulatory Authority of India was swayed. What was the byproduct of market forces was nipped in the bud.The losers: the financially weak telecom users who would have graduated to using smartphones and been the potential customers of innovative ventures.

How good intentions get circumvented was amplified by the recent ruckus over mounting bad debts of PSU banks. Pre-1969, there were no government-owned banks. Banking functions were dictated by market forces. To bring into the mainstream the marginalized section, most of the private banks were nationalized. Norms of priority sector lending were introduced despite non-existent returns. Loan melas and loan waivers became the pre-election flavor. Licensing raj ensured that favored capitalists got access to cheap funds. Top appointments were made not based on capability but willingness to bend. The Reserve Bank of India recently directed banks to undertake controlled fusion of the rotten assets. The explosion brought down equities. If liquidity infusion is considered essential to create demand for goods and services and regulatory oversight necessary to create a level-playing field for net users, there should not be any scope to question the government’s use of the public sector to channelize funds to starved sections and create life-long employment. Regulators all over the world step in to prevent deals that would create monopolies or pricing inequality.Losers are the shareholders of enterprises that would have thrived only if they were left alone. Investors’ naively believe listing improves efficiency and prompts profit maximization policies. They have to keep in mind that the risk of distortion of the market might be outside the control of companies. 

Friendly exchange

Listing of trading platforms will open up their operations to scrutiny and set the stage to phase out their regulatory role

By Mohan Sule

A crucial component to attract investors is sanctity of the market. The term is open ended. It can mean different things to different people. Symmetrical dissemination of information and severe punishment to those violating their trust might provide comfort to the small investors. Institutional investors might want an end to the discount in the pricing of IPOs to the retail investors and smooth settlement process. Easing of norms for installing co-location servers for the split-second advantage in the trading ring might be a cause of delight for traders. Issuers might list liquidity and a crackdown on mischief makers spreading rumours to hammer down stocks. The bottom line is that though there is a consensus that the market must be fair and transparent, there are varying shades of opinion on what it means and how to achieve the objective. There is growing exasperation among companies with stock exchanges seeking clarification on every news report. Small investors complain about the preferential treatment given to select analysts by some companies. Big investors fret about tightening of lock-in on exits from IPOs, private placement and preferential allotment. In short, despite the best efforts by stock exchanges and the regulator, there is no unanimity among the players on whether enough has been done or more measures are needed to ensure a level-playing field for all market participants. The other debatable point is who should undertake the exercise: the capital market watchdog or the stock exchanges. Both have overlapping authority. Both can seek explanations from companies for acts that might have an impact on their stock’s movement. One can eject a company for not following the listing agreement, while the other can bar a company from raising funds for indiscipline. The issue has assumed significance following the go-ahead by the Securities and Exchange Board of India to bourses offering equity trading to list.

The primary worry is the collateral damage if stock exchanges become profit-oriented. Many listed firms that have opted for institutional capital due to cost-effectiveness have had to concede to the opinions of these influential shareholders. These companies have to live quarter by quarter. Till now, stock exchanges might have had the luxury of taking a hit now and then without angry shareholders telling them to cut cost and put in more work to increase market share. Yet, at this point, there is enormous market to tap as India prepares to embark on a double-digit growth path. The mushrooming of start-ups opens the door to widen the universe of listed companies and thereby increase revenues. Setting up a state-of-the-art trading platform is expensive and support is required of outsiders with deep pockets. How long can these big-ticket investors sit idle without expecting to see return on their investments? Funding will promote better infrastructure and niche platforms for specialized companies. Well capitalized exchanges might bring down trading cost and benefit investors. A market-oriented approach will hopefully replace the current complacent attitude in solving members’ and investors’ problems. Presence of independent representation on the board might result in better regulatory compliance.

Then there is the question of conflict of interest. To be sure, Sebi has put in place restrictions of quality of shareholding and control to ensure that the operations are run professionally. Listing on own exchange has been barred. This is puzzling. World over, some of the biggest bourses are listed and are traded on their own platform without any doubts about regulatory advantage. Also, what happens if the NSE makes a bid for the BSE on which it might be listed? Nasdaq had wanted to take over the derivatives and cash business of the proposed NYSE Euronext Deutsche Borse, the attempt to amalgamate of two stock exchanges on two different continents that was blocked by the European Union despite winning approval from the US anti-trust regulator. In fact, the oversight by Sebi will make stock exchanges transparent about their revenue sources. How much of the income is generated from algo trades over small lots of ordinary investors? There will be an opportunity to showcase the firewalls in place to eschew any breaches. As such, trading platforms should be allowed to have a wider shareholder base without any restriction on M&As. Eventually, they should be looked upon as tech companies or e-commerce ventures offering a meeting place for buyers and sellers. Regulatory responsibilities should gradually pass on to the market watchdog, unburdening the exchanges of any monitoring role so as to enable them to function as organisations whose unique proposition is using technology to meet the demand of consumers efficiently and openly. Otherwise, they will be subject to bear hammering and hostile or friendly acquisition by bigger and better exchanges enjoying superior discounting.

March to the tune

Being part of the global economy, India’s central bank cannot afford to slow down its easy money policy

By Mohan Sule

It is not only policy makers and central bankers who are feeling boxed by the turmoil in world markets. Ordinary investors, too, are perplexed. Traditional rules of investing are being tested with every bout of volatility that the market undergoes. The wild swings in the market movements are becoming the rule rather than exceptions. The first area of confusion is if globalization is beneficial. Since the emergence of China as the manufacturing powerhouse late last century and the outsourcing boom since the beginning of the century, investors have been hearing of the advantages of how international supply chains are keeping costs low and brining in rays of sunshine to dark corners of the world. The clever label of emerging markets indicated the tremendous gains to be made. For instance, the size of the middle class in India riding on back-office servicing opportunities was supposed to be equal to the entire population of the US. There was talk of India recording double-digit growth as a norm, like China, at the turn of the last decade. The worry of policy makers was not what to do to cross the milestone but how to calibrate the incoming gush of foreign portfolio funds without fuelling inflation. Many other peers had imposed capital controls.

If September 2001 brought into open the dangers of global terrorism and triggered the ongoing World War III, the collapse of Lehman Brothers in September 2008 became the defining moment for financial markets. It ended the age of predictable bull runs and bear phases, of commodity cycles, of correlation of stock movements with the cost and supply of money. The first two global conflicts were essentially tug-of-wars in supremacy of manpower and artillery. Whoever had more boots on the ground and technological edge in the air emerged winner. There was legitimacy accorded to the victors sharing the spoils. The current warfare, in contrast, is not conventional. It is seamless without defined borders or enemy troops. Similarly, doubts have arisen about traditional economic theories. The drying up of credit in the US had ripple effects on the emerging markets. Despite the upside potential of India, foreign funds inflows slowed down. The conclusion: the promise of growth has to be fuelled by liquidity. Instead of belt-tightening to de-leverage, the US Federal Reserve loosened the supply of dollars and kept interest rates near zero to spur economic activity, dealing a blow to conventional wisdom. Cheap money was fuelled into stocks but not for consumption. The dollar, contrary to expectation, strengthened and flew to emerging markets. It has taken the US more than seven years to recover, notwithstanding the series of fiscal stimuli. In spite of the absence of barriers for easy movement of money, man power, goods and services within the region, there is no uniformity in the health of the different members of the euro. The implication is that even if cheap money is required to encourage risk-taking, the by-product can be asset bubbles. At home, the creation of disposable income through dole-outs under the guise of social programs aimed at the rural poor is blamed for the rising prices of vegetables and lentils as well as boosting sales of durables and non-durables.

China’s troubles and the fallout, however, are stark reminders that the proposition of de-coupling, with economies applying age-old medicines to treat local ailments, has not stood the test of the time. The second largest economy in the world depends on overseas orders to keep its factories running but relies on retail investors to keep the stock market surging. The currency has been devalued to remain competitive in the market place as unemployment will end the bull-run in equities. The casualty, however, is oil. Even after declining nearly 80% from the peak in 2008, oil-dependent economies such as India have not gained as exports, many to the Gulf region, are not rising in tandem. Thus, another age-old approach to investing lies tattered. The focus on exports can be rewarding as long as the destinations stay in good shape. The domestic market, too, cannot remain insulated from the chill as cheap imports in search of markets pose a danger to local manufacturing. Another corollary is that monetary policy cannot be tweaked in isolation. The Fed is widely expected not to raise rates in this calendar year after its maiden attempt in a decade following signs of domestic recovery due to slowdown and recession elsewhere. The Indian central bank’s dilemma is still more complex: the need is to increase interest rates to tame food inflation but, at the same time, keep them low so as not to turn off foreign investors and freeze industrial output. However, being a cog in the global economy means growth has to take priority over inflation so as not to lose the position as the only bright spot in the world.

Lost in the crowd

The small investor seems forgotten in the rush to please the small saver, the small borrower and the small entrepreneur

By Mohan Sule

The small man is drawing disproportionate attention of late. Ambitious programs have been formulated to woo the marginalised citizen. The zero-balance scheme has the icing of overdraft facility besides being the receptacle for cash to buy subsidised consumption items.  Life and accident insurance cover can be had by paying a nominal premium. The unorganized sector now has been offered the security of pension. The promise of universal housing by the time India turns 75 years is primarily aimed at those outside the mainstream. Electricity for all, to be a reality by 2019, is an important cog in the infrastructure maze besides road linkage that will aid urbanisation and draw attendant benefits.  A complex financial engineering exercise will excise the huge debt of state electricity boards to remove last-mile obstacles. Telecom companies have been asked to shape up so that connectivity remains clog-free. A roadmap has been laid out by the central bank for pass-through of interest rate cuts. If the small saver and the small borrower are sought to be protected, the small entrepreneur, too, is at the centrepiece of policy directives. Niche Mudra is refinancing loans to daily wage earners. Ease of doing business has become the new anthem. Transparency and stability in taxation are the conjoined twins on display. There is promise of eschewing retrospective changes. Harried bosses bogged down with inventories, excess capacity and slump in demand are soothed by talk of dethroning the adverse tax regime and lowering tax rates in lieu of exemptions. Permits to start business are being shaves or bunched under a single window.

Lost in translation of big ideas for the common man is the small investor. To be sure, the Securities and Exchange Board of India has been periodically updating and introducing guidelines to make the trading environment attractive and safe for the ordinary investor.  There is insistence on disclosures and transparency. The regulator has also been fairly active in banning companies from capital markets for sins of omission and commission. The new Companies Act has revised accounting norms and third-party transactions. The idea is that all price-sensitive information is in the public domain. Yet, investors, particularly the minority, continue to remain wary of companies, government and the regulator. The dominant feeling is that the big fish invariably get away. The dithering over the merger of scam-ridden NSEL with healthy parent FTIL has been exasperating. It is possible for investors to spot danger signals from financial numbers and qualitative information. The woes of Kingfisher airlines were not secret. The problems of capital-intensive companies such as engineering, procurement and construction players, miners or telecom services providers are widely discussed. Costly mergers and acquisitions have proved to be the Waterloo of many leaders.

Yet many events unfold unexpectedly. The depreciation of the Chinese currency created havoc in the emerging markets: importers and exporters to the giant economy. Hardly any one forecast the devaluation of the yuan twice over. Companies worldwide have the tendency to go belly up without warning. Overnight, Satyam Computer Services, among the top four tech companies in India, went bust after the promoter admitted to cooking the books. Enron and many other emerging companies and hedge funds, too, have collapsed without much ado.  How can minority investors’ interest be safeguarded in such instances? The bankruptcy bill pending in parliament will end the prolonged period of grief of the small shareholders as sick companies make the round of banks and the Board for Industrial and Financial Reconstruction. That’s about all as creditors will continue to have the first right on the proceeds from the sale of assets. The holding period to qualify for long-term capital gains was reduced to one year for equity to encourage retail participation but is three years for debt schemes. Probably the architects of the provision mistakenly believed that debt funds carry less risk and changes in interest rates come after long intervals and are secular. The agony of fixed-income investors as they waited for the US Federal Reserve to make up its mind is fresh. The stir created by the holding of paper of an auto ancillary maker that was downgraded has brought the focus on the dangers posed by competitive debt funds eager to offer market-beating returns. With global economies in a flux and different geographies taking varying views on interest rates, the volatility in markets hitherto considered staid and steady is bound to increase. The time has come to bring all investment instruments on par in their treatment of lock-in and tax rate.

A new era

Globalization means the age of prolonged bull and bear runs is nearly over as different markets cope with unique challenges

By  Mohan Sule

Investors fear volatility. It makes them risk-averse. Many prefer to stay on the sidelines till the market calms down. It is drilled into their psyche that the patch of turbulence is temporary. Contributing factors ranging from political instability, disturbances, liquidity crunch to weather fluctuations are enumerated. Indeed some of the causes are of short duration and are resolved rapidly. A few might have the tendency to fester indefinitely or erupt frequently. The unpredictable scenario puts off a large chunk of investors from equities. Some tiptoe occasionally to test the waters and scurry back to the safety of fixed income instruments on getting burned. Most keep waiting for the market to stabilize to form an opinion. Of late, however, there is a reckoning that the turmoil is likely to be a recurring feature rather than once-in-a-while phenomenon. The inter-linking of markets has magnified the impact of developments in some corner of the globe on trading worldwide. Mapping of scheduled events for their ramifications on investment pattern is turning to be an academic exercise rather than an attempt to maximize profit or restrict losses. A recent illustration of the diminishing returns of projections was the anticipation of market movements on the expected hike in US Federal Reserve’s discount rate. Contrary to the general belief, markets rose rather than nosedive after the central bank increased rates 0.25% after more than a decade. Those who withdrew or held back expecting more correction were disappointed.

If a predictable occurrence led to so much hand-wringing, then the continuing suspense over the course of direction of the market might break down traditional methods of making investment decisions. Stability in policies, taxation and laws are attractive pivots for investors. The after-effects of the havoc created in the market a few years ago when then Union Finance Minister Pranab Mukherjee levied retrospective capital gains tax on overseas transactions of assets in India are still recalled and felt. Companies consistent in their dividend payouts are preferred.The importance can be gauged by the recent directive of the market regulator to issuers to disclose their dividend policies. Those utilizing funds for purpose other than stated in the prospectus have to offer exit option to investors. So far it was understood that exporters’ fortunes are tied to the health of the importing countries. Now there is a reckoning that even executive actions can have a bearing. Shares of tech companies took a hit when the US government announced hike in H-1B visa fees from 2016. On the other side, the export tax slapped by the Indonesian government on coal blunted to some extend the cost-effectiveness of importing the commodity to tide over local shortage. The restrictions imposed by the Supreme Court and the Delhi government on vehicular movement in the capital hurt shares of makers of big vehicles.

The biggest puzzle is why plunging commodity prices are not lifting economies of the emerging markets. India’s growth seems to have flattened and that of China’s slowed down. The slump in demand for oil and metals has resulted in supply glut, keeping prices down and, in turn, pulling down the economies of the producers. Investment in shale gas, a shining star till recently, has proved to be non-starter. The irony is that most of the emerging markets look at the commodity producers as important markets for their goods and services. The Gulf is a major source of remittances and buyer of Indian merchandise and projects. The global economy, therefore, seems to be trapped in a vicious cycle. Countries exporting natural resources want consumption to increase to stay buoyant. The increase in appetite of the users is supported by debt and leads to asset bubbles and eventually a bust. Thus, the calculation of investors hoping for oil-based industries getting a boost has gone off the mark. Similarly, some of the blue chips from legacy conglomerates have underperformed as they have had to commit significant resources to succeed in the auctions for natural resources, leaving them cash-strapped to undertake capital expenditure. Those basing their investment calls on longevity of an enterprise as well as enthusiastically backing emerging sectors that have proved to be capital guzzlers might have had to cut their losses. Not surprisingly, bets on entities based on their geographical presence are proving to be costly after the emergence of low-asset model e-commerce start-ups. The sudden transformation in the outlook of different regions is turning equities choppy. Investors will have to brace for the market to change moods often and unexpectedly. The solace will be the ease of entry and exit for those with opposing views.

Climate change

The year of scanty monsoon to incessant out-of-season rains and thrifty giveaways giving way to generous public payout

By Mohan Sule

It took many years of persuasion, prevarication and procrastination for the world to realize the dangers climate change posed for the survival of the human race. But, for India, 2015 was a year of sudden transformation, of paradoxes and contrasts. It took just days for the crescendo of infallibility and invincibility to crash into a pit of despair and dejection. If the high point was the feeling of smugness to see the world’s most powerful man braving smog and a drizzle to catch the Republic Day parade in the capital, the low point was the bounce-back into the political arena of a crusader from bureaucracy, one of the three strands choking the common man in their tentacles of quid pro quo. Not surprisingly, the market, too, took no time to come back to reality after reaching the zenith as the euphoria of India finally cutting the umbilical cord of giveaways to farmers and friendly capitalists got punctured by the second consecutive deficient southwest monsoon. Ironically, it poured and how in some coastal belts even as many parched states continued their tryst with famine and farmers’ suicides. The trepidation in waiting for the most powerful woman on earth to act outdid the plot line of a Hitchcock movie in its twisted suspense even as foreign equity and debt investors suffered a spell of vertigo. Nonetheless, foreign direct investment made a beeline on spotting of opportunities in insurance and defense and Make in India even as China collapsed under the weight of excess capacities and unbridled speculation in the primary market. If there was unanimity on the cause — excessive leverage — of the euro region’s recession, there was no such agreement on why India’s growth engine had lost steam. The reasons ranged from those with substance (the slow pace of reforms) to bogus (failure to build consensus with a recalcitrant opposition focused single-mindedly on stalling legislation to trip the economy).

The confusion was evident elsewhere, too. The ghost of Hamlet haunted the Fed as it wrestled with the dilemma to raise rates or not to without upending the emerging markets and so also our own central banker: tame food inflation or boost industrial output. Banks, though, shrugged off the benevolence, obsessed as they were in cleaning up their balance sheets, marked with years of generosity to customers with closeness to the movers and shakers as collateral. Squeezing margins, falling demand and spiralling food prices were not the ingredients to boost the spirits, despite plunging commodity prices proving to be a silver lining. The promise of operational autonomy in lending was as enchanting as a rainbow. In fact, the hard times exposed the unpalatable underbelly. In spite of rapid urbanization, villages held the key to savings and consumption. No wonder, financial inclusion became a buzzword, with attractive acronyms coined to capture the essence. Transfer of subsidy benefit and deduction of pension and accident cover premium were believed to be the recipe to bite into the banking habit. A welcome sign was the thrift on display, ranging from selling natural resources through bidding to reluctance in waiving loans and ramping up a minimal the minimum support price for crops. Yet, there was splash of indulgence. The hefty increments recommended by pay commissions transformed government and PSUs as sought-after employers as evident from the clamor to expand reservation quotas.

The Bihar polls demonstrated that getting the mathematics of caste and community equation right mattered more than the combustible composition of a corruption-free society. If the results underlined the limits of brand power and the downside of brand dilution, they also reinforced the adage of what it means to win the battle but to lose the war. It was triumph of parochialism (Bihari v Bahari), viewed as a legitimate concern when practiced by one set of players but not by others (presidential campaign in the US). Hypocrisy was perhaps the most enduring takeout of the year. For the sullen opposition, the idea of pulling India by the bootstraps came to imply sabka saath, ek family ka vikas. The indefatigable salesman, logging flier miles to make friends for India, was ridiculed for being an NRI and enthralling a constituency that was not going to vote. A 56-day sabbatical to mysterious lands, however, was considered necessary for reinvention and rejuvenation. Unwittingly, the argument exposed the chinks in the intolerant debate. The existential fear stemmed from the attack on holy cows of cronyism and appeasement of entrenched interests and the emergence of voices that were hitherto suppressed. There was shock and awe that many might actually like and share a new growth trajectory based on market intervention rather than the state-knows-best trickle-down economics. The climate in India surely underwent a change in 2015.

Factoring in the Fed

Increase in interest rates by the US central bank will eliminate uncertainty and correct stock prices that have outpaced earnings

by Mohan Sule

The question is not if but when. After seven years of keeping interest rates near zero, the US Federal Reserve is preparing to gradually ramp up the cost of money. Inflation is moving up, house prices hardening and jobless claims falling. So there is every chance that the US central bank might muster courage and take the plunge. The possibility of such an eventuality has been in circulation even before its October meet, when it put off the decision. The blowout in China and the recession-like conditions in the euro region weighed on just as the fragility of the US economic recovery, spurring speculation that the Fed might even postpone the rate hike to 2016. The uncertainty about its moves seems to be tapering, with near 80% of international money managers in a recent poll ascertaining that December might be the month signalling a U-turn of the monetary policy. Yet, going by past experience, the bounce-back of the domestic economy might not be the only factor to contribute to such a reversal in stance. The poor health of the euro region and Japan along with volatility in the emerging markets in anticipation of such a step is likely to be factored in. Besides, a sudden rush of fund inflows from different corners of the globe has the potential to fuel inflation faster than that might be desired by the Fed. The already strong dollar will become mightier still, jeopardizing American exports. The result will be the reverse of what happened pre-global financial crisis: cheap dollars and yen flooded emerging markets in search of better yields. The fear of formation of asset bubbles forced central banks of these countries to ramp up interest rates, thereby disturbing the equilibrium necessary for long-term money to flow around the globe smoothly.

Despite apprehensions about the potential of the undercurrents to capsize the emerging markets’ currencies, the increase in US interest rates will be a welcome development for many reasons. First, it will be an unambiguous affirmation about the recovery of the US. Second, a booming America has the force to pull China’s and other emerging markets out of the rut. Before China became the pivot to the world, the global economy was US-centric. The country was the largest exporter and importer. The double-digit growth of the mainland was mainly due to American businesses’ quest to keep prices of output low. This was done by shifting manufacturing to China and back-office services to India. With domestic consumption low due to high savings, China suffered as the US went into a tailspin after the credit crunch. Third, tech companies have emerged as one of the significant sources of foreign exchange earnings. A weak rupee will be an attractive proposition for US clients while placing orders, propelling the sector’s growth and hiring. Fourth, the domino effect will increase China’s consumption of commodities, helping economies of metal and oil producers such as Brazil and Russia to recover from the slump. The euro region, whose health is increasingly linked to that of China, will be able to rapidly climb out of recession. Fifth, dumping of China’s cheap goods into India and other emerging economies will slow down, boosting domestic producers. Local sourcing will be important for infrastructure spending. In the process, commodity prices will not remain untouched. Blunting the implications of a ballooning import bill will be robust exports.

Oil producers have kept their output intact despite declining prices to neutralize the threat from shale gas. With this mind, it is unlikely that they will take advantage of increasing consumption to ramp up prices to unrealistic levels to profit from the situation. For one, it will provide support to the comatose US shale gas industry. Second, the global economy could once again slide into recession. The response of the stock markets in emerging market is not expected to be dramatic. Many have factored in the imminent increase in US rates. Corporate India’s earnings have not kept pace with prices and further correction, if any, due to acceleration in foreign fund outflows will provide an opportunity to enter quality stocks at reasonable valuations. IPO pricing, too, will get moderated, leaving scope for appreciation post listing as local big-ticket and small investors are more finicky about getting big bang for their bucks. Importantly, domestic institutions are buying even at the current level, spotting growth potential going ahead and perhaps in the belief that any decline from the current level might be short-lived. Against this backdrop, investors should hope that the Fed begins its course correction sooner than later.