First Global's Sharma sees India's anti-corruption drive bad for GDP growth

Investment Guru: GDP will dive if 'lynch-mobs' rule

Markets are not there for morality

Shankar Sharma is lionized by the Indian financial press and online investment forums. He enjoys a status in India like Hong Kong's Dr Doom. He is not shy to go against majority sentiment and talks freely to anyone who will listen.


To be fair, Dr Doom (Swiss Marc Faber) formerly MD of Drexel Burnham & Lambert in Hong Kong, was never banned from stock market trading. 


Shankar Sharma, vice-chairman and joint MD of First Global Stock Broking Ltd was banned a year by the Securities and Exchange Board of India (SEBI) in 2009 for generating fictitious trades with colluding brokers in what was known as the "Ketan Parekh scam".


Sharma vented his feelings about the recent anti-corruption demonstrations in a wide-ranging interview with The Economic Times recently (30 Sept).


In particular he railed against the chill the anti-corruption campaign has cast on politicians and bureaucrats across India. That will lead to hesitation in concluding contracts and implementing projects. He believes this will result in lower GDP growth and corporate profits.



"Mark my words...if lynch mobs are going to run the country, we are heading for a very dark period".



The Mumbai stock market trading community generally finds any attempt to rein-in its freewheeling ways unwelcome. The last thing they want is more regulation, or worse, forfeiture of gains, conviction and jail! 


Anti-corruption crusader Anna Hazare's proposed Jan Lokpal Bill which Parliament has accepted 'in principle', prescribes exactly that for corrupt practices and practitioners.


Markets are not there for morality


Sharma's point is that stock markets and punters don't really care how profits are made as long as they have opportunity to play for increasing gains.


So if a management greases politicians and bureaucrats to win a lucrative contract, that is good for business and stock investors.


Sharma affects an insouciant amorality about the means. "As long as management doesn't get caught in the act, everything is fine".


Sweetheart deals make super-normal profits 


In Sharma's observation, it is 'sweetheart deals' purchased through the selective incentivization of the 'Neta-Babu nexus' (politicians-bureaucrats) which allows businesses to generate super-normal profits.


India's reported USD 1.4 trillion 'black money' stashed in Swiss Banks may have a direct link to this time-honoured pump of super-normal profits. 


It certainly is not being declared to Inland Revenue or paid to the Exchequer as taxes.


ENDS