History, they say, repeats.

I was pulling up a "Word" file from my computer, hit a few wrong buttons, and landed up with this article.
This article was written in November 1999 as the proposed foreword of the Equitymaster Stock Market Yearbook that was to be printed in December 1999......

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START OF ARTICLE
Could this be the beginning of a new beginning? India has a new government. The Indian economy has begun its recovery with a growth of 6% in industrial production. The BSE-30 Index of share prices has crossed the 5,000 mark for the first time ever. This government has begun taking bold steps like liberalising the insurance sector, raising the prices of diesel, and going ahead with the divestment process. To add to the domestic confidence, the Asian and global economies have begun a recovery process and foreign direct investors seem to have decided to increase their commitment to India. There is much to be said in support of this "new beginning" thought process. True, the people in power are the same as the ones we had a few months ago but, this time around, they may have a more genuine desire to change India. Or, as the sceptics ask, is this just a classic case of old wine in a new bottle?

The numbers suggest that the economy is recovering. And on track. Data from the Centre for Monitoring Indian Economy, the respected independent economic forecasting company, indicates an 18% growth in the fiscal year ended March 31, 2000 (FY00) for the automobile industry as opposed to negative growth rates in FY99 and FY98. This is still below the 30% growth seen in FY95 but at least it is a number in the right direction. Finished steel has a similar story and is likely to show a 5% growth in production in FY00 from a negative 3% in FY99 but still below the peak of 20% seen in FY96. Cement production is strong with an expected 15% growth in FY00, higher than the 6% growth seen in FY99 and more than the peak of 12% seen in FY96.

Talks with companies suggest more optimism about the future and the buying pattern of consumers suggests their confidence levels are also rising. The state of an economy seems to be influenced partly by policy and partly by the actions and expectations of the participants. No matter how good the Chidambaram budget of February 1997, the fear of consumers as Mr. Kesri pulled the rug on the Gowda government dashed any hopes of higher economic activity that year. In contrast, this government is in a honeymoon phase where all its actions are seen to be good and mistakes will be passed unpunished by optimistic consumers. To understand the power of psychology and consumer behaviour, one needs to look at the economy of the United States.

All traditional measures of economic forecasting are being turned upside-down to explain the continued run of the U.S. economy. A trade account deficit of over US$ 250 billion (3% of GDP) should have sent the US dollar into a tailspin because, when you have a negative trade equation with the rest of the world, you are essentially printing dollars to pay the world. This excessive printing should cause the value of the US dollar to decline. As the US currency declines in value, foreigners should be selling US assets causing the Dow Jones Index to fall, resulting in erosion in household wealth and declining consumer confidence as the future stability of jobs and wealth is called into question. However, each time the concerns over the macro numbers cause the Dow to correct, the consumers - who are also investors - get right back into the market and push the Dow higher. This increases the wealth of the consumers and their "feel good" factor and sends them right back to the shops to buy more goods. Higher consumption keeps the economy humming along although at a higher trade account imbalance. One day, the US economy will have to pay for the higher current account but, for now, the confident consumers don't seem to care.

But policy making is an important ingredient to forming consumer confidence. In the United States, the confidence of consumers, which borders on cockiness, is based on a perception that their central bank led by Mr. Greenspan will do nothing to spoil the party. In India, the confidence is fueled by a belief that this government will make the "hard" decisions and set the platform for the next level of economic growth. But there is another level of "consumers" which do not really fit into many of our economic meaningful statistics as they are not "consumers" in the true sense of the word. These are the 400 million people who live below the poverty line - a population equal to that of USA and Western Europe. Governments in India have the un-enviable task of not only worrying about how to improve the lives of "consumers" like us but also giving a basic life to the 400 million that most of us will never know. May this government take advantage of its honeymoon period, the confidence in the air, and the recovery in the economy, to set a long term plan for the 400 million.

Mumbai. December, 1999.
END OF ARTICLE.

Interesting, isn't it?
The BSE-30 Index was 5,000 then.
It is 15,000 now, about 10 years later. That's a rate of return of +12% every year plus probably another +2% every year in dividends and benefits from rights issues. A total of maybe 14% every year for 10 years. Not bad.

There have been many changes in governments in India since then.
The world has changed in so many ways.

We were worried about so many things then.
We are worried about so many things now.
Will swine flu wipe us out?
Or a nuclear disaster?

So where will be in December 2019?
I know that I will be 59 years old - hopefully alive, in good health, and still writing.

But will the BSE-30 Index surge another 3x to a level of 45,000?

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The best way to find yourself is to lose yourself in the service of others.”
Mahatma Gandhi