The Budget Ratio to Wrestle With

Among the wonders of an oral culture, as India’s is often described, is the eerie way in which a nifty phrase can take hold of one’s thoughts regardless of how fond or unfond one is of it. The Union Budget’s ‘tooth- to-tail ratio’ has had my mind abuzz all weekend. While it would risk a serious lapse of fiscal numeracy to try putting a figure to any such variable, there are signs that the Centre is set to re-gear itself, as it were, with ‘extra teeth’ for the economy’s expansion. The military origin of this oddly feral-sounding ratio need not worry anyone; like so much else in the verbal world, it has long been taken over by corporate executives as a casual way to speak of gnashy market efficacy over tail-end business enablers. Often, a shift of this ratio separates failure from success. And if an infrastructure thrust pushes the Centre’s goal of fixing India’s fisc—at no more than 3 per cent of GDP—further ahead by one year, the way this re-gears the country’s economy may yet turn out to be well worth the delay.

No surprise there. While global observers may want to knit their brows over this brazen shrug at conventional fiscal wisdom, there had been hints aplenty of a relaxation of the Centre’s need to spend less and earn more; India’s Fiscal Responsibility and Budget Management Act of 2003 is not carved in stone.

What arouses a far less dorky interest than the fiscal figure is the Budget’s avowed emphasis on universal welfare. And here, my dental/ mental buzz has led me to an old parlour game: of watching a single company’s share price move on the stock exchange.

Malcolm Gladwell may have warned of how dodgy a ‘thin slice’ sample could be, but to assess what market participants—whose collective forecast of a company’s prospects is what its stock price reflects—make of the ripple effect of everything economic across the land, what better than Colgate as a proxy? As a brand, Colgate has long been India’s most trusted, a distinction that has survived the onslaught of far fancier names drawn by the country’s rapid emergence as a market since 1991. As a company, it’s the maker of more than half of all the paste squeezed out of tubes across India for oralcare (Unilever, the No 2, has only about a fifth of the market), a routine that’s reportedly habitual for nine of every ten urban and six of every ten rural residents. As a market leader, Colgate spans virtually every socio-economic segment with the appeal of its products, be it the classic ‘suraksha chakra’ as an oral guard, a slippery white powder that’s strictly not to be snorted, or its latest Optic White smile enhancer. And, as a stock, Colgate is an outlier whose ‘price-earnings ratio’—what each rupee of profit made costs an investor who buys it—frequently seems to be under the influence of forces otherworldly enough to inspire awe.

The brand leads almost every segment of the Indian oralcare market, an especially glaring exception being mouthwash where J&J’s Listerine accounts for two of every three gulpfuls taken by people fussy about oral hygiene (or, in extreme cases, in desperate need of alcohol). And, by and large, its performance has been so steady, its penetration of the market so slick, it’s not all that absurd to suggest— a la America and GM once—what’s good for India’s economy is good for this company.

So, which way did this fabled stock go?

Its instant response was one of rational exuberance. Websites that keep track of such things saw ‘Buy’ calls whip their way around. Comment boards found themselves littered with what looked like rave reports.

Last spotted on a ticker-tape crawling across a screen, the stock had leapt past Rs 2,000 per equity unit, its PE ratio above 50, if you please.

Admittedly, all of this may just be the usual stuff one expects of a market where any kind of volatility—and the Budget is always special for traders no matter what—is an easy occasion to make money. This could easily happen to any stock one picks for such an exercise, and indeed lots of them have seen gains since Budget day. What makes Colgate special is that its success would be roundly representative not just of a few being better off, but all-India multitudes as well.

On that test, as telescoped by all those who buy and sell shares after taking a good hard look at all sorts of micro and macro factors that need to be taken into account, the Union Budget for 2015-16 has had a warmer reception than what the modest rise of the BSE Sensex would suggest.

If the Budget is set to shift that feral ratio in favour of teeth, all the better. So long as it spells better health in one way or another for everyone out there.

economic wisdomFiscal Responsibility ActGlobal observersUnion Budget 2015