Return
to Story Page
To print: Select File and then Print from your
browser's menu
K Seshadri
Mumbai, 27: The Indian stock market has been setting its foot on one land mine or another from time to time. This time around a political land mine blew up in the bourses during the week. Poll predictions pointing to BJP taking a beating led to a sell off in the markets. And a trigger the market needed, which was provided by Telco's delay in launching Indica. Bears lost no time in kicking the ball southwards once FIIs started it rolling. But hark, for you need to differentiate between fact and fiction.
It is too easy for you only to go along with the crowd and feel paralysed and depressed. But seriously, stand aside and take a non-emotional and non-coloured view.
Do not become a victim to mass hysteria. Is the turn of political events a crisis for the stock markets really? Sensex went down from 2,939 points to 2,783 points during the week, losing 156 points or a whopping 5 per cent. Earlier to that, the market had touched a peak of 3,027 points during the week-ended November 13. Therefore, from this peakthe loss to the Sensex has been 242 points or roughly 8 per cent. A little backwards, for the week ending September 30, the index was at a peak of 3,265 points. In other words the index has now lost 482 points or an unbelievable 15 per cent in three months!
What do these figures tell you?
First and foremost, the market has the scope to gain 15 per cent from the present low. But take a look at what happened earlier. Corporate quarterly results had been out. A recovery in the commercial vehicles segment had been noted. Cement prodution was up by 10 per cent. Cement prices had firmed up. There was a growth in consumer durable goods sales.
And the government had initiated steps to protect the steel industry from dumping. Steel companies had raised the price of their products by 5 per cent. The buyback ordinance had been promulgated and provided some kind of hope and stimulus.
But beyond these measures, the government itself was lost for a clue as to how to revive the stock markets. On the other handmoney supply growth has been phenomenal leading to inflationary pressures in the economy, making it impossible to lower interest rates. The prime minister is taking up the issue of high fiscal deficit with all the chief ministers, and this is good for the market. Over the last four years, the major political parties have been moving towards a consensus on the economic policies to be pursued. The chief minister's conference would provide one more opportunity.
At the same time the stock investor needs to know that the BJP does not face much of a threat, immediately. The Cong-I has already made it clear that it will not contrive to make the BJP-led government fall. But at the same time it is open to the idea of forming the government, if the government should fall on its own.
The fact remains that as things stand now, the Congress is no match for the BJP on the national scale. Except in Maharastra, it does not have a great presence elsewhere. But that will not stop an attack being launched on the BJP by theregional parties and Congress together. At the same time the present crisis sends a strong message to the BJP. If it does not correct the inflation and produce visible results, its days in power are numbered. The BJP has taken some long-term measures. The number of individual tax payers has multiplied three-fold. This is the result of a long-term strategy to widen the tax base. The measure was started by the UF government. BJP has also done what it can to attract higher FDI and shore up NRI deposits and interests. But it needs to do better to attract funds into the infrastructure sector. A fresh thrust can be given to power sector. Investors should welcome this.
The current attack on the BJP would provide the necessary drive for it to manage the country better and faster. So in the final analysis, you can rule out an immediate threat to the government. You can also look forward to the BJP trying to perk up. And come January, you can look forward to fresh FII investment. So the dilemma for the investors isjust for one month, and you can live through the bogey of year-end FII sales! The Christmas holidays too is to be taken into account.
So what would happen to the market now? I am reasonably sure that local punters would not be sitting idle until January. In fact as prices crash, they would keep buying for warehousing. After all FIIs would be there in January to lift it.
Apply this logic to Telco, ACC, BHEL, HPCL, Cochin Refinery, Hindalco and even the software companies. You will see why the Sensex cannot stay at the bottom for too long.
And it is not difficult to imagine the Sensex to be going back to 3,265 points in the next four months. That would be a 15 per cent return on investment. But if you calculate that on the margin money for forward trading, it is 100 per cent return in four months. Mouth watering is'nt it?
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------