The markets are on a roll. Not just in India.

Share prices have been climbing in the US as well. It could be a result of perceived excessive liquidity in the markets, or the first positive consequences of the Troubled Asset Relief Programme, or TARP, unveiled by US President Barack Obama. Or, again, it could be sheer madness. The last possibility sounds more credible as the markets go on a rebound from one boom to another, followed by sharper and even more painful busts that follow. Price-earnings, or P-E, multiples of the S&P 500 climbed to a record high, even as earnings adjusted against inflation touched record lows.

Also See Poised For A Fall (Graphics)

Of course, a charitable explanation could be that the markets see a turnaround, and are discounting future earnings and supporting these absurdly high P-E numbers. But given the past, and how easy liquidity has always encouraged both recklessness and greed (the former being a result of the latter), it is more likely that the markets are poised for a fall.

Also Read R N Bhaskar’s earlier columns

A similar movement can be discerned in India’s stock markets as well. The P-E numbers have begun climbing even while earnings have not been very impressive. True, foreign exchange inflows have been soaring, but as this column explained recently, these flows could be hot money pouring into India.

In any case, the rise in Indian market indices is the steepest in recent times and appears to reflect the madness of the US markets. Once all the results for 2008-09 are out, the P-E numbers should be significantly higher.

The next few months should tell.


Transparency towards creditors

A 20 May report on distressed discount retailer Subhiksha Trading Services Ltd in this newspaper ( showed how the latest financial statements of the retailer had been submitted to the Madras high court. Kotak Mahindra Bank Ltd, one of the lenders to the company and which had filed a winding up petition against it, was not even aware of what the accounts reflected, as the papers were submitted only to the court. This effectively goes against provisions of the company law, which give the first right to a company’s accounts to its shareholders and creditors. This is the second time in the recent past when the rights of creditors and shareholders were bypassed.

The first was when Satyam Computer Services Ltd’s accounts and figures were not disclosed to creditors. In fact, there were attempts to prevent even the Securities and Exchange Board of India (Sebi), the market regulator, from examining the records of the company. It required the Supreme Court’s intervention to give Sebi access to some of those papers.

In yet another instance, the high court in Gujarat forbade a bank from taking over the debts of another bank, challenging the concept of a market for debt instruments. The Supreme Court reversed this ruling, pending a further judgement on the issue.

Unfortunately, the Subhiksha and Satyam moves have not been challenged by any advocacy group. But there are good reasons to believe that the refusal to give creditors and shareholders first access to any company’s papers (even photocopies would suffice) could lead to several unhealthy practices in corporate law. It must be borne in mind that even the Registrar of Companies gets a copy of a company’s accounts only after the shareholders have approved them.

Are the laws being distorted?


More troubles for port plans in Rewas

The Bombay high court has refused to compel the government of Maharashtra to pass orders for the acquisition of land that Reliance Industries Ltd (RIL) wants in and around Navi Mumbai.

The state government had announced, about two years ago, its “intention" to acquire the land. This intent lapses on 6 June under the Land Acquisition Act of 1894.

The problem arose when villagers in the area objected to the acquisition proposal even though RIL had offered them an attractive rehabilitation and resettlement package. The villagers then called for a “vote" and the results were gathered by the district collector. But the collector was restrained by the state government from announcing the results.

After Singur, land acquisition in India has become a hot potato. Moreover, with assembly elections in Maharashtra due in September, the issue has become even more sensitive.

If the land is not acquired, it would be a setback to RIL’s plans to build a large port in Rewas. A good port must have three things—a good draft (depth of water), lots of land for evacuation of goods and excellent linkages (road, rail, air). At present Rewas has a bit of the third, but not the other two. And RIL is unwilling to go ahead with dredging, estimated to cost Rs2,000 crore, if the land is not available.

R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at

Graphics by Ahmed Raza Khan / Mint