What goes up fast, also comes down fast

My interest in the stock market arose at the time of Reliance Power IPO. That was the first time that I commented on the stock market. At that time, I started reading Udayan Mukherjee’s column in HT. I liked his writing style.

Anyway, a few days back he wrote that India is being punished for being an outperformer. He mentions in his article that India had gone up by 106% during the 18 month period June 2006 to January 2008 while US went up just 16 percent. On the other hand, Indian market went down 25% as compared to US which went down just 5%. He thinks that this was unfair. I don’t know why. The fantastic rise in the Sensex was just baseless. You can take the case of Reliance Petroleum whose share prices had risen to astronomical level with no basis. I had heard that it hardly does any business. What about the Reliance Power valuations before the buble burst? Look at the illiogical behaviour of all the parties involved in the Reliance IPO. The owner wants to sell at Rs. 450/share. The market wants to buy at Rs. 900. The share floats at Rs. 250-300/share. Anil Ambani turns generous and wants to return the extra money. With behaviour like this, I would like to know who expected this high growth to be sustainable.

I would like to say to Udayan that whatever goes up fast will not be sustainable.

Avinash Narula
www.management-talk.com

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Comments

Hi!

Another example of what goes up fast also comes down fast is ICICI Bank’s current situation.

I remember that whenever I conducted a seminar on customer satisfaction and retention, I always used the example of my horrible experience with ICICI Bank. Invariably, I used to be asked the question that if ICICI was so bad then why was it growing so fast and why was is it so profitable? I really didn’t have the guts at that time to go against what seemed like a stellar performance. ICICI was even valued higher than SBI. Though, I used to give a logical reply, this was something that always bothered me.

However, now everything has come in the open. All of a sudden, one reads that it is one of the worst performing banks on practically all the parameters that one can think of. They are paying for their aggressive marketing strategy in the retail sector by their high level of NPAs. In addition, I am sure that their ill-treatment of customers must be hurting them.

I believe that growth that is achieved by taking the right actions will bear fruit in the future. Any growth that is pushed through forcefully will always have adverse consequences in the future.

I am reminded of a country music song that says that “if it doesn’t come easy, just let it go.” Of course, here the singer is talking about love. It implies that you cannot push somebody to love you. Similarly, you just cannot become no. 1, 2, or 3 just by a aggresive approach. The reason is that when you turn aggressive, do you think that others will just keep quiet?

So just growing fast is not a sensible objective.

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