Technology, Venture Capital, Private Equity

Perspectives from an Indian VC

Boom bust cycles – fueled by media?

Posted by Arun Uday on December 1, 2009

The news flow this week and the manner in which media, especially Indian media has reacted to it has in many ways corroborated what’s been on mind for some time now, which is – the media’s role in precipitating boom bust cycles. From the “World is coming apart, again, because of the Dubai debt crisis” to “We are back in business thanks to smashing GDP growth in India”, the difference in projected moods could not have been starker. One could argue that it is expected of the media to report actual happenings and if that’s the way things are unfolding, so be it. However, it is not the Dubai crisis or the impressive India GDP nos in particular, but the general manner of news reporting in India itself that I’d like to touch upon.

The book “Irrational Exuberance” has a chapter that deals with the impact of the emergence of dedicated business news channels like CNBC on stock market valuations. It notes that as business TV channels brought the stock markets to the drawing rooms of households they went from being the preserve of finance professionals to a matter of interest for the common man and as a result all of a sudden, there was a huge surge in retail stock participation leading to a recalibration of valuation benchmarks. Many finance professionals, who didn’t perceive this ongoing dynamic and viewed the high valuations in traditional light lost money on shorting the market. So, the point is that the ripple effects of such media frenzy are not trivial. They could have some serious bearing on the way the markets and even economies function. Another interesting book released recently related to a similar topic is “Blinded by Optimism”, which discusses how inordinate optimism and relentless encouragement of positive thinking in the US has turned people into unrealistic dreamers and worked against real American interest.

Coming back to the point on the banality of media reporting in India, the sad part is that unlike other major global markets, the market leader in India (who I don’t wish to name, but should be easy to guess) itself suffers from a syndrome of exaggerating our own accomplishments (by our, I mean India’s). Actually, it goes a step further – it is their stated editorial policy to mostly report “feel good news”. As an example the said media house recently reported as headline cover page news that a commerce graduate in India had secured an analyst job in an investment bank in London for a salary of $69k p.a. To lift a contemporary phrase from popular lingo as response to this – “Dude, gimme a break!” Is this really worthy of headline news in a national newspaper? An Analyst job in an investment bank in an advanced country is akin to a s/w job in an IT company in India. While it is somewhat sought after, it is not exactly headline worthy. I mean, guess what impression you’d have of a country where you land and see newspapers screaming that someone there had been recruited as a programmer in TCS. In similar vein, the frenzied manner of reporting issues by the leading newspapers in India, especially when it comes to favorable news like GDP growth leaves a lot to be desired. The ball-by-ball commentary on b-school placements that the media indulges in being another example of the same penchant. And India is somewhat unique in that respect. Think WSJ in US or FT in London, who have yet maintained a some gravity in their reporting in contrast to most of Indian media, which mostly seem to play to the galleries. Do I mean to suggest that the healthy growth GDP growth in India not be highlighted – “No”. But, what we could do with (much) less of is this whipping of frenzy stuff and the “now we are bust, now it is rock-n-roll” business.

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