The Indian equity market is the most volatile in the world. Within a day, swings of 3-4% are not uncommon, making a trading session look more like a T20 innings rather than the test matches more calmly played in other exchanges around the world. Even if one hasn’t lost one’s blouse in the bourses yet, this is bad news for the economy as frightened investors start demanding higher and higher risk premia, raising the cost of capital. Even emerging markets traders, the Wild West cowboys of the financial world, get a worried look when it comes to talk about putting money into India.
Why did it get this way? Several reasons have been posited: the mercurial Indian psyche, the predominance of speculators (read Gujarati housewives) as opposed to long term investors (read fat cat investment houses), the easy access to margin money, derivatives trading and so on. All these may be true, but if I were to blame someone for creating and exacerbating this mess it would be the financial news channels. They create an atmosphere of panic, they encourage rampant speculation and all of them have abdicated their responsibility to inform and educate. Tabloid journalism might be okay for general news, but when it comes to financial news, this TRP-fueled, ‘breaking news’ culture can cause the market to swallow your life’s savings in an instant, and send our economy into a recessive spiral that may be impossible to crawl out of.
Let me explain how this works with an example of an interview on one of the channels this morning. The particular channel is immaterial as they are all the same, although this one is a four-letter word.
Allow me to paraphrase what the conversation on the channel was, or at least would have been, if they had been honest.
Presenter: “Mr Sharma you’re on the air, please ask your question?”
Mr Sharma (The mythical ‘small investor’ from a TIER II city with probably a planted question): “I have 20 shares of SBI bought at Rs 1800 what should I do, madam?” (By the way, how is it at all relevant how many or what price Mr Sharma bought his SBI shares at, considering there are over 4.25 million shares traded in SBI daily? The market doesn’t know or care what price Mr Sharma bought his shares, so any trading strategy should not be affected by his or anybody else’s acquisition price. After all, whether he bought them for a crore of rupees or found them under his mattress while spring cleaning, what must be relevant to Sharma and to the millions of expectant eyeballs is what SBI’s worth and prospects are right now!)
Presenter: “Let’s ask our ‘expert’.”
Expert (Equity analyst in a crisp white shirt and ghastly yellow tie): “According to our Bollinger bands taken in conjunction with our 30 DMA and looking at the candlesticks with a eye on the hemline, I would recommend 2300 levels for SBI with a stop loss at 1800 and a resistance level at 2500.”
Mr Sharma: “Eh?”
Expert: “Look brother, I just tried to confuse you with some technical sounding gobbledygook. Buy it at 2000 because I’m hoping it will go up, but if it goes down you can’t sue me because I told you that it can go below 1800 also.”
Presenter: “Don’t worry Mr Expert, Mr Sharma is too scared and I’m too dumb to ask you any tough questions. Like…how can you know from your charts what interest rate policies are going to be, or what SBI’s profitability is going to be? If you are just going by your charts then all you have are past prices to predict future ones, which make absolutely no logical sense as things change in the real world. Also, if you are saying that either SBI can go below 1800 or above 2300 (which is what a stop loss prediction is) aren’t you just uttering a complete cover-your-ass truism (much like an astrologer)? In which case, how do you justify your continuing to draw your salary, let alone coming here as a financial expert on a national channel?”
Mr Sharma: “Dammit I should have listened to my mother-in-law and put the money in LIC policies.”
This obscene play keeps repeating 24×7 on all our channels. Instead of reporting news, it’s all about views. Should I buy or sell or hold? They should be called financial views channels. They encourage over-speculation and trigger-happy trading. Indeed technical analysis (the word for looking at price trends to discover future prices) has been discredited all over the world for many years now, but still thrives in our numerologically-minded country.
Problem is that in this type of mindset where there are no intrinsic values for shares just trends, a couple of price blips downward and then it’s just free fall. There is no voice of sanity saying, hey, maybe these shares are worth something in the real world, i.e. they are worth a share of SBI’s assets, and that since the company’s earnings aren’t fluctuating wildly with every trend in its price, one needn’t buy or sell that often.
This mad race to the bottom is in every type of television. News channels vie with each other with scandal mongering and sensationalism. Cricket channels have been reduced to showing baseball, I’m sorry, T20. I mean what else can one call three hours of low full tosses and cross-batted swipes over midwicket. And the financial channels love panics and price bubbles. Naturally. It makes for great TV.
What is SEBI doing to stem this rot? It needs to set higher standards because in a cut-throat competitive scenario no one channel is going to take the step towards improving its quality. Quality is boring. Nobody wants to watch quality. Most people simply want trading tips and market spikes, and crashes are so exciting. The trouble is that volatility causes problems in the wider economy and affects a lot more people than just those playing satta.
Anchors must be educationally qualified. Experts should be held accountable for their views. The focus should be on reporting news, not on trying to predict stock prices. If this doesn’t happen, we’ll continue to ride the extreme swings of elation and despair, with super profits for a few, and destitution for the vast majority of the investing community and the wider economy.
