Days after the Indian markets saw their second largest intra-day fall-the BSE Sensex fell by over 1,000 points on October 24, 2008-the finance ministry had issued an unusual informal communique to select journalists in a bid to assuage the panic among investors.

Arguing that the hammering received by Indian stocks had more to do with irrational pessimism than companies? fundamental prospects, the ministry?s spin doctors compared the profit after tax numbers of 10 major firms for the year?s Q1 with the Q2 numbers that had just been released at the time.

The data revealed that these firms? PAT growth in Q1 (compared to the same quarter in the previous year) and Q2 was not dramatically different. In fact, companies like GAIL (India), Hero Honda Motors and Sterlite Industries had seen better PAT growth in Q2. The ministry juxtaposed the PAT growth numbers to the share prices of these firms as on April 1, 2008?when the market was bullish?and October 24. Sterlite?s share was quoting at less than a third of its April price; GAIL was over 100% down. Hero Honda was the only company in the list whose share price was higher than its April level.

The Parliament was in session at the time and MPs from both Houses had begun asking a slew of questions about the decline in Sensex from the 20,000+ levels at the beginning of 2008. On the floor of the House, minister of state for finance Pawan Kumar Bansal?s response was measured ??volatility is inherent in any market, the Indian markets? fall was in line with world indices?.

The informal communiqu? was meant to send out a message about the market turmoil that couldn?t be officially conveyed, and to that extent, it can?t be faulted. But government mandarins need to tread carefully while getting onto stock analysts? turf?the list of ten stocks they had cited included a certain Satyam Computer Services, whose price was down from Rs 398 on April 1 to Rs 286 on October 24, despite registering over 40% growth in PAT (as certified by B Ramalinga Raju and Satyam?s Big Four audit firm) in the first two quarters!

vikas.dhoot@expressindia.com