Too good to last

It’s been five years since the collapse of Lehman Brothers. That and the AIG bailout made it evident that even an evolved society such as the US was not averse to crony capitalism. The ‘too big to fail’ façade meant that many whose personal assets should have been seized to pay for their omissions continue to live in supersized comfort. While it is debatable if any lessons have been learnt, asset markets made merry on the ‘stimulus’ that followed.

The liquidity gush benefited us as well and we could have been much better placed economically if our smug policy makers had done their bit. But as things stand today, Afghanistan with its trigger-happy Taliban and a GDP less than Mukesh Ambani’s net worth has a stronger currency than that of India.

For investors, though, it is not all gloom as we discovered when working on the current issue of outperformers. The benchmark indices might have gone through mood swings but many investors have laughed all the way to the bank. Helicopter Ben’s generosity and our own government’s profligacy have ensured that the consumption engine has chugged along. It is no surprise, therefore, that consumer-facing companies emerged as big winners over the past five years. Still, our much-touted demographic dividend notwithstanding, this resilience could soon be put to the test.

With economic growth plummeting and layoffs increasing, domestic consumption-driven companies, be it staples or durables, could see stagnant sales. Some of this anxiety is already being reflected in their stock prices. Clearly, there is a limit to which the consumption engine can be stretched. The same applies to government finances and sops, for which the only escape valve is inflation and higher taxes, none of which, of course, will be borne by those disbursing the largesse. Therefore, unless capital expenditure by companies picks up again, we could soon be caught in a vicious cycle of falling growth and destruction of spending power.

Not that stress levels are any lower now, but if this bleak phase continues it will not astonish us if pharmaceutical companies dominate our next list of outperformers. In an uncertain market, their ‘defensive’ status will get them undue attention.