Wednesday, May 14, 2014

Short the Market!

As the Sensex and Nifty surge to all-time highs and giddy pundits predict that Narendra Modi’s projected rise to the Prime Ministerial gaddi will send the markets into the stratosphere, I would like to hand out an outsider tip: short the market!

Most of the money inflating the Indian indices has come from foreign institutional investors (FIIs), and if reality bites on the 16th, we can expect a torrid flow back and a radical correction in the markets and the value of the Rupee.

That will create a sense of panic and doom and lay the whammy on those trying to put together a non-Modi government.

Perhaps that, rather than the fabled “animal spirits” of foreign investors, is behind the ballooning markets.

Look at it from the point of view of the Powers that be, the Permanent Members of the UN Security Council.

The United States and China are engaged in a delicate pas de deux, the one pushing for a process that would bring in a multi-party democracy in Beijing and the other insisting that the existing Beagle Boys gang is best for the Chinese people.

(I think Michelle Obama and kids pushed the American message with great delicacy on their recent trip to China but had little success – even after the Pentagon tried to assuage Chinese fears of losing Tibet by flicking the kill switch on one of our B-15 troop transports. It also seems to me that Beijing’s mad dog behavior towards Japan and Vietnam is intended to signal its readiness to take off the gloves.)

At this suspenseful stage, neither Beijing nor Washington wants a regime in New Delhi capable of an assertive foreign policy.

Britain, France and the Russian Federation all have important arms supply relationships with India that would not be improved by having a strong and stable government in Delhi.

Additionally, Britain’s hopes of investing in India its ill-gotten trillions from organized crime, especially the “illicit drugs” trade out of Afghanistan, depend on weakness in Delhi.

Going by recent developments, I think the main conduit for those investments is going to be the TATA group. Its Chairman emeritus has just been given a knighthood of “the order of the British Empire” – yes, the same one that killed about 500 million Indians in less than 200 years – and his successor’s background is in infrastructure (the sector into which most FII money will probably go). Also,Voltas, a TATA company, continues to signal that the Brits will not want for toadies when they come, again.

In combination then, my tip to savvy investors is to short the market for the aftermath of the 16th, and go long on TATA Infra.

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