What were the causes of the rally? Industry remains down in the dumps, the latest confirmation of that being the figures for the Index of Industrial Production. Anecdotal evidence does not point to any change inbusiness sentiment. One indication of the prevailing business outlook has been provided by the BHEL chairman, when he said that his company would continue to have single digit growth this fiscal. Although export growth has picked up, the World Bank's most recent report paints a gloomy picture of world trade and income growth this year. World Bank chief economist Joseph Stiglitz has said that the bank's sobering forecast reflects declining trade growth, slumping commodity prices, and tightened long-term financing, which have hurt most developing countries. So far as the budget proposals are concerned, taxes have been raised and the corporate sector has been rather disappointed. It is, therefore, quite clear, that the post-budget rally was not because of enhanced expectations of corporate earnings. The `fundamentals' of the economy remain as flawed as ever. The sole reason why stock prices went up after the budget was the announcement of sops for the markets, in particular those announced for mutual funds. Thismeasure enhanced the attraction of investing in mutual funds, and the market expected a shift in portfolio preference from FDs to mutual funds. It was the expectation of a surge in money flowing into the markets that led to the upsurge. The change in FII inflows also helped.

Reports have indicated that, whatever be the fate of the Government, the budget stands a good chance of getting passed. Add the fact that whichever Government is in power can hardly afford to reverse the benefits given to the market. Once there is a reasonable chance of the budget getting passed, the market should once again pick up, since the reasons for the earlier rally continue to exist, regardless of the Government in power.