Look upwards: A soaring Sensex, but how far will it go?

Three years ago (march of 2003, to be exact), BT did a cover story on the stock markets, asking if the barometer index, Sensex, could go from 3,100 to 4,000 by year-end. Today, when the Sensex is way above 11,000, our tentativeness then seems laughable. But when we were writing the story, India was a far less sanguine country. The US had just launched its attack on Iraq and Jaswant Singh's Union budget didn't have anything in it for markets to cheer about. In fact, when the story idea came up for discussion in our edit meeting, some of our colleagues thought we were sticking our neck far out by setting a 4,500 target (as was the original plan), so the figure was lowered to 4,000.

All of us know what's happened since then. The Sensex has just soared and soared. And not just the Sensex. Real estate prices have gone through the roof, white-collar salaries have jumped and employee attrition rates have touched new highs in almost all industries. If India ever had a wind-in-its-hair ride, this has to be it. But the question is, are we riding for a fall? Stock and real estate prices have been rising for one simple reason: Billions of investor dollar have poured into the markets. Between April 1, 2003 and March 30, 2006, FIIs (foreign institutional investors) invested $29.45 billion (Rs 1,32,525 crore) in Indian equities. In real estate too, prices have risen giddily, and new funds are popping up almost every day. It's evident that at some point the growth in Sensex valuation (it's at a price-earning multiple of 21 currently) will far outstrip the growth in corporate earnings. Yet, the market today doesn't seem to care. Similarly, in real estate too, prices will soon reach a point where office-space cost alone will start denting the competitiveness of Indian companies in it and ITEs, retail and financial services. The price correction, therefore, has to happen. Will it happen in a year or two years? We don't know.

But some big problems with the current exuberance are evident. Millions of Indians in villages and even big cities haven't been touched by this boom at all. They are still struggling to make ends meet, and it is absolutely critical that their purchasing power goes up if consumption is to be sustained in the long term. The bigger bottleneck to growth is, of course, infrastructure. The country is woefully short of power, water, roads, airport infrastructure, besides universal education and healthcare. The current market calculus has factored in all the positives, but none of the negatives. Sooner or later someone-most likely, the foreign investor-is going to catch the flaw in this arithmetic.

Drop This Proposal

Premier institutes: Excellence be damned, just reserve it

Why is the government bent on killing our top institutions? Because that's precisely what will happen to the Indian Institutes of Technology (IITs) and the Indian Institutes of Management (IIMs) if the government succeeds in its ill-advised move to increase quotas at these institutes from 22.5 per cent at present to 49.5 per cent. To be perfectly honest, the government hasn't yet said it will do so. But Human Resource Development Minister Arjun Singh's recent missive to state governments directing them to frame laws in accordance with the 104th Amendment to the Constitution (which gives states the right to, among other things, reserve seats for Scheduled Castes, Scheduled Tribes and other backward classes in educational institutions) implies that it is only a matter of time before it happens. Reason: it will have to practice what it preaches; it is also just the kind of populist move that some politicians think they can sell to the electorate.

We think it's a bad idea and, therefore, thrown out in limine. The IITs and the IIMs are two of the best known Indian brands in the world. And their continued success is crucial to the spread of Indian soft power. Away from the arc lights, thousands of successful IIT and IIM alumni are changing traditional perceptions about India-by doing whatever they're doing as well as, if not better than, their peers from better known and older educational institutions mainly in the us and Europe. In doing so, they've carved out a well-defined place for themselves and, by extension, their country among the world's professional elite. Increasing the level of reservations in these institutions will fly in the face of this merit-based logic and dilute their brand equity.

Business Today is all for affirmative action to help disadvantaged people. But we believe that reservations work better at more basic levels of education. "Quota" students, who have studied up to the high school or graduation levels (the minimum eligibility criteria for IITs and IIMs, respectively), should have acquired sufficient proficiency in their chosen fields to be able to enter these institutions on merit. If they still need crutches to help them at this stage, they obviously don't deserve to be there.

Populism and vote bank politics have played havoc with many Indian institutions in the past. At a time when India is emerging as the most exciting meritocracy in the world, the last thing we need is the IITs and IIMs following the examples of the many once-famous, but now decrepit state universities that dot our metropolitan cities.

Our plea to the Union HRD Minister: drop this proposal, Sir. Please.

Cooking Up CVs

Services sector: Desperate to staff

Reports of a large number of employees in the IT sector buffing up their credentials should set the alarm bells ringing. Several companies like IBM and Wipro have fired hundreds of such employees over the last 12 months. What is worrisome is not the fact that employees are claiming to possess skills that they don't really have, but that the resume fudging is so widespread. As it is now slowly emerging, it is not just the IT industry that is the victim of embellished resumes, but also retail, banking and insurance.

Why is it that an entire generation of service sector workers seems to be lying about its credentials? Look again. There's a common thread to the industries facing this problem. IT, retail, banking and insurance are sectors where growth has been breakneck over the last few years, forcing employers to hire just about anybody. The IT industry, for instance, used to employ 800,000 people in 2004, now it employs 1.3 million. This is expected to double in the next three to five years. While supply of engineers has increased, quality has not kept pace, as pointed out by the Chairman of Infosys, N.R. Narayana Murthy, who recently declared that "75 per cent of engineers coming out (of colleges) are unemployable".

With the services sector constituting more than half of the country's GDP, it is time industry woke up to the problem and made a concerted effort to tackle it. Its future growth depends on it. Instead of poaching talent from the same pool-a short-sighted effort that leads to spiralling wage bills and constant churn-employers have to adopt a two-pronged approach. First, for those falsifying credentials, show no mercy. Create a national database (for it, nasscom could play the lead role) of all blacklisted candidates. Companies should bar recruitment agencies that knowingly help candidates lie about their testimonials. Like companies abroad, they should make it a practice to run independent background checks on candidates.

More importantly, industry as a whole should come together to invest resources in training people. That really is the long-term solution to an ironic situation, where there's no dearth of people, but a severe crunch of those with the right skills. If engineers coming out of India's colleges do not fit their requirements, companies should work closely with academia and government to address this problem.