Thinkpad: Goals, Goalposts, And Self-Goals
The week was about goalposts cleared, self-goals scored and legends and legendary goals remembered.
Hope you’re having a good weekend.
The week was about goalposts cleared, self-goals scored, and legends and legendary goals remembered.
Soccer legend Diego Maradona died this week. Memories poured out. The New York Times called him ‘The Most Human Of Immortals’. The Guardian quoted two football greats. “I lost a great friend and the world lost a legend. One day, I hope we can play ball together in the sky,” Pele told the Guardian. “He leaves us but does not leave, because Diego is eternal,” Lionel Messi was quoted as saying. “I saw Maradona do things that God himself would doubt were possible,” Brazil’s Zico told Bloomberg.
The Financial Times chimed in with a reminder that the power of Maradona was such that it even made its presence felt in the central banking world (yes, central banking!). They referred to the 2005 speech by former Bank of England governor Lord Mervyn King, who used Maradona’s legendary 1986 goals to draw an analogy to how central banking works. The Hand-of-God goal summed up the “mystery and mystique” approach to central banking. It was “unexpected, time-inconsistent and against the rules,” Lord King said.
The second goal was compared by Lord King to how the market responds to expectations of what the central bank will do. Just like Maradona managed to run in a straight line to score a historic goal when defenders expected him to move right or left but not straight, central banks can influence the path of the economy without eventually making large changes simply because markets expect them to move in a certain direction. You can read that speech here.
From legendary goals to goalposts.
The Nifty crossed the 13,000-mark this week with a rush of money, particularly from foreign investors flowing in. The 50-stock index is currently trading at a one-year forward price-to-earnings multiple of 26.6 times, according to Bloomberg data. That compares with its 10-year average of 17.3 times. But valuations seem like no bar.
Still, the celebrations were tinged with caution. A common question on many minds: Now what? Niraj Shah tries to answer that here. Questions also remain on whether the strong foreign inflows will last. Credit Suisse isn’t sure they will.
The self-goal for the month comes from the Reserve Bank of India. At a time when the regulator is already facing the heat for financial sector accidents, a casual suggestion to open up the banking sector to corporate houses has drawn much ire.
Former RBI governor Raghuram Rajan and former deputy governor Viral Acharya asked ‘Why Now?’ in a scathing post. Speaking to BloombergQuint, Rajan questioned whether there is a wider economic rationale for the suggestion or if its being done to help a few. You can watch that conversation here. Others like S&P Global, too, weighed in to say that corporate entry in banking is a risky proposition.
Thinkpad understands that the debate is not one-sided. First, there is a legitimate question about who will fund India’s growth, particularly in segments like infrastructure. Second, where will the equity for new banks and banking ventures come from? Third, if the government attempts to privatise public sector banks, who will buy them?
Some of these questions could find an answer in permitting a wider gamut of participants into banking. But it’s up to the RBI to build a coherent argument if it’s serious about the idea. Else, it should let sleeping dogs lie.
Till next week.
