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The Dom Perignon index

January 02, 2004

With sober-suited analysts on television calling for the Sensex to reach 10,000 by 2005 and 7,000 by the end of the financial year, it is time to look around to see whether cab drivers have become pundits yet.

Let us recall an oft-confirmed old adage of markets: that when some of the least-knowledgeable people start pontificating about the bull run, it is time for the smart money to exit.

Well, I am here to report that cab drivers (at least in Mumbai) are not at all beholden of the stock market boom, at least not yet.

In fact, cab drivers are having a pretty tough time of it, and have been for the past four or five years.

Explosive growth in the number of taxis -- there are more cabs in Mumbai than there are in New York -- after the mini-boom in the early 1990s, followed by the huge increase in the number of private cars, without a commensurate increase in usage charges -- parking rates in Mumbai are minuscule in comparison with virtually any major city in the world -- has taken a heavy toll of the taxi business.

As a result, few cab drivers have their heads sufficiently above the water to even see the stock market, let alone get involved with it.

So, it is unlikely that cab drivers will serve the key role -- of providing an early warning signal of markets overheating -- during this boom.

On the other hand, perhaps it means that this boom is -- as of now, at least -- more real. It is still being driven by "smart" money, and, judging from the comments from the FII-broker set, the tide of foreign (does that still mean smart?) money is just beginning to turn into a flood. And to turn Shakespearean for a moment, there comes a tide in the times of man, which, when taken at the flood…

Well, if 2003 was that tide for India, 2004 promises the flood, as domestic savers join foreign investors doing the salsa on the bourses.

The trickle of retail interest began a few months ago with the Maruti IPO and appears to be on a steady uptrend, with a regular feed of successful IPOs hitting the market every few weeks.

The mutual fund industry has matured, and while it will doubtless go through cleaning out cycles from time to time -- notably on non-transparency of fees -- it seems certain that the AUM (assets under management) of mutual funds will continue to climb sharply.

With domestic investors confirming their buying power by putting their money behind it, foreign investment, and particularly FDI, will further accelerate.

I note that Greed & Fear, a wonderful market analysis from Credit Lyonnais, has long been awaiting the return of domestic investors to Asian markets, as a trigger for a second stage take-off.

Of course, all this wide-eyed action does draw out the nay-sayers, the more nervous of whom are already -- quietly -- worrying about a back-lash when the market corrects. They also point to the upcoming elections.

Well, the market will certainly go through some serious corrections during the year; that is the nature of the beast -- it never goes straight up.

But with SEBI's teeth nicely buffed behind Mr Bajpai's smile, it won't be the old take-the-money-and-buy-a-condominium-in-New York approach to capital markets that drives corrections, but rather healthy bouts of profit-taking.

Building all of this in, it certainly seems like the market has a long way to go. And as anyone who remembers the hysteria of earlier bull-runs -- when the Oberoi bar was packed with eager white boys in red suspenders, when two of every three billboards were advertising primary issues -- would recognise, the market today, while certainly bubbly, is a long way from frothy.

Which brings me to champagne. Several years ago (July 1991), I had written an article entitled "Champagne and Vada Pao" to describe the first bubbling of the new Indian economy.

In those days, domestic champagne was relatively new and, like many new products, more froth than bubbles. Of course, I drank it as fast as I could get it.

The vada pao was, I guess, part poetic license and part an acknowledgement of the fact that basic values could also be tasty.

Several years, uncounted bottles of champagne and a couple of exploded stock market bubbles later, both the Indian investor and I have become far more sophisticated.

Domestic champagne has evolved -- more bubbles, less froth -- and I now sip champagne like someone who has arrived (rather than guzzle it a la nouveau).

At a party last week, sipping some excellent Sula Brut, I was discussing the champagne market in India with the head of Moet Chandon and he told me that Dom Perignon was available at Rs 9,000 a bottle.

Now, I've only had Dom Perignon occasionally and to my recollection it is beyond superb -- mostly bubbles, almost no froth. 9,000 a bottle seems a fair price, I told him.

He smiled and something popped in my head. We had also been talking about India Shining, the new India, the stock market boom, whatever, and it suddenly hit me. I had bubbles spinning in my head. It was clear. The Sensex will hit 9,000 by the end of 2004.

Happy New Year! And here's hoping that Moet Chandon sends me a case of Dom Perignon for the New Year.

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