Little sign of Modi cronyism in stock market trends

Last week’s column cited news reports of The Times of India and Economic Times in which businessmen and bureaucrats agreed almost unanimously that big corruption had fallen dramatically under Narendra Modi. But Rahul Gandhi says that Modi heads a suited-booted government favouring only the rich and a few close cronies. Let’s examine that claim this week, using evidence from stock markets. When Modi was elected on May 15 last year, the Sensex was at 27,159. Today, it is up only marginally, at 27,957.

So much for the supposed Modi sell-out to business! All market gains in Modi’s early months have reversed. The growth of industrial production, exports and bank credit has been dismal. Corporate results have been very weak in the last two quarters. So, stock markets have shed their initial euphoria. Some say we should look at trends since January 2014, when opinion polls began pointing to a Modi victory and induced markets to soar. Let’s do that. The Sensex was at 21,140 on January 1, 2014. It has risen 32% since. In this period, the share price of Adani Enterprises, flagship of the Adani group, is up 190%. Critics cite this as proof of cronyism but many companies have fared even better.

The crony theory collapses if we look at the Ambanis, who are infinitely bigger and richer than Adani. The share price of Reliance Industries Ltd, Mukesh Ambani’s juggernaut, has risen just 1% since the start of 2014! Anil Ambani’s top companies have fared even worse: Reliance Power is down 28% and Reliance Communications is down a whopping 53%. No crony windfalls here. Comparing Adani’s companies with the Sensex is misleading. The 30 companies comprising the Sensex are the largest and most resilient, and so their prices fall or rise relatively little in slumps and booms. More volatile are big non-Sensex stocks, while the most volatile are mid-cap and small-cap stocks.

Adani Enterprises, a large but non-Sensex stock, has done well, but so have many of its peers. In our reference period, truck-maker Ashok Leyland is up 308%. Auto-ancillary giant Bharat Forge is up 278%. These are not Modi cronies. Easily the biggest gainers have been small-to-medium companies. These are too numerous to list, so consider just the top performers among the companies whose shares I own, or used to own. Tops is Alphageo, a seismic survey company, up 571%. Next come Avanti Feeds (537%), Waterbase (520%), Global Offshore (469%), Hester Biosciences (466%), Ratnamani Metals and Tunes (371%) and Bajaj Finance (192%).

Clearly, Adani Enterprises has been outperformed by dozens of other stocks. Cronyism has nothing to do with it. Indeed, for fear of being accused of cronyism, Modi leaned on the State Bank of India to mothball a proposed big loan for Adani’s Australian coal project. The Economic Times report I cited last week said that Modi was very anxious to show the public that he doesn’t favour any industrial groups, and so refuses to fix their individual problems.

Businessmen complain of “neglect” and lack of “access.” Mukesh Ambani is a major sufferer. He wanted an overdue increase in the price of natural gas from $4.2/unit fixed years ago. The UPA’s Kelkar Committee suggested auctions at thehighest price, which would have fetched maybe $15/unit. The Rangarajan Committee suggested a formula yielding $8.4/unit. But the Modi government created its own formula giving Ambani only $5.61/unit. This was later cut to $5.17/unit. There is talk of a special premium for difficult deepwater fields, since the ONGC says it cannot exploit its deepwater fields at the current low price. But as of now, Mukesh must be wishing dearly for the good old days of Congress cronyism.

Dhirubhai Ambani was a notorious Congress crony and master manipulator. It’s somewhat ridiculous for his companies to be called BJP cronies by Rahul. Businessmen have always had to pay off the party in power, the Congress being the top beneficiary. But today businessmen complain that they cannot buy influence any more. A Mumbai industrialist told the Economic Times, “We fund many parties but with Narendrabhai we can’t expect a quid pro quo.” The UPA swore for years to crush black money. Nobody took it seriously since Congress stalwarts themselves were neck-deep in black money. But, says Ambit Capital, a prominent investment banker, Modi’s new black money bill has created such fear among businessmen that many plan to give up their Indian citizenship and go abroad to escape prosecution.

None of this means that the BJP is incorruptible or has no black money. Gopinath Munde, late BJP leader in Maharashtra, openly said he spent Rs 23 crore on an election. But whatever cronyism still exists is a pale shadow of the cronyism that marked decades of Congress rule.

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