Indian stocks crash: "We are inferior" mentality is the cause

There was a blood bath on the Indian stock market on Friday. The Bombay Sensitive Index of 30 leading stocks tanked by more than a thousand points. Within a few months the index has come to below 10,000 from 20,000 points. The usual culprit is the US sub-prime and the coming recession in the US. Bush's gallant efforts seem to be proving quite ineffectual.

But should the Indian stocks fall so drastically? You may say markets are crashing in all European countries too. But India is India. The most pessimistic prediction says it will clock a 6.5% growth rate this year. The Reserve Bank of India, which is known for its conservative estimates, says the figure is likely to be 7.7%. Now this despite being lower than China's growth rate, is nothing we should be sitting and weeping about. By global standards this is good news. India is the second fastest growing economy. We should hardly compare India with other countries, European or any other.

The Prime Minister said yesterday that we have nothing to worry about. India's banking sector is very robust and not likely in the least to go under. Our banks fortunately have not contacted the bad habits of many US and European banks and invested in the fancy avatars of the sub prime debt.

The Indian finance minister says the fundamentals of Indian companies and the economy as a whole is strong. Then why on earth is the Indian share market falling like nine pins? You may say, herd instinct. That is part of the answer. The other part of the answer is that Indian investors do not seem to have merged from the inferiority complex that we have had vis-a-vis the west. The thinking is "if the western stocks are falling, we too are doomed. So sell." But listen to what the Prime Minister and the Finance Minister are saying. This is no false pep talk. They are talking sense. Believe in our companies, for God's sake! Look at their balance sheets and then decide to sell or buy. Don't sell like a fool because investors are selling in New York or London.

India and China are a breed apart. In some ways we are better than China. Most of their foreign exchange come from their exports. The percentage in India is low, say about 13%. So a fall in demand in the US is not going to sink our economy.

We should become aware of our new position and situation and act accordingly. The time to shrug off the inferiority complex is now.