The Hindu Business Line : P-factor holds sway in market moves

Over the past 12 months, the market has witnessed economic fundamentals take the centre stage in the political discourse overcoming other compulsions.

THE whiff of the feel-good breeze sweeping through the stock market on the year-end owes its allegiance not so much to the strong economic factors or the growing overseas fund inflows or even the smart improvement in corporate scorecards, but to a quiet changeover in the aggregate political mindset over the past months.

For the market this is significant because the coming year is a general election year. The secondary market players have always attempted to grapple with the political factor but could not quite manage to do it.

Unpredictable and, often considered antagonistic to the market mechanism, the P-factor undeniably holds sway in the market moves, albeit indirectly.

The perceptible change is towards a centrist position, pragmatic but off the left or right path.

The market is weary of extreme faces and masks of the political establishment. Talking to an array of market players one gets the impression that a gradually emerging trend among the major political parties in carefully dovetailing the rabble rousing to development and lessening of social tensions, is a surprise catch of the 2003.

Over the past 12 months, the market has witnessed economic fundamentals take the centre stage in the political discourse overcoming other compulsions.

Amid a churning, a base for a long-term bull market has largely been laid on the basis of an unwritten but broadly manifest convergence of heterogeneous political forces towards a consensus on market dynamics of the new global order of which India is willy-nilly a participant.

The stock market's confidence stems from the growing realisation that none of the political forces will be able to reverse the direction of the economic reforms process that has a bearing on the overall socio-political canvas of the country.

The foreign institutional investors, particularly the emerging funds are betting precisely on this. Apart from the GDP growth (a number of countries in the emerging markets have better GDP growth rate than India), the political stability factor and the foreign policy consistency have played a role in deciding the destination of the FII flow despite Ayodhya, Pokhran, Kargil and Gujarat.

More and more global funds are finding Indian stock market valuation cheaper than the rest of the emerging markets.

In 2004, a section of the large overseas pension funds, which had so far avoided Indian turf, are poised to make their entry. The entry of these long-term and stable players will lend sobriety to the local market. It will also mark trust of the global investors on the Indian polity.

Even through the 2003, relatively short-term overseas funds, including hedge funds, have not shown their intention of making a quick buck so far in the Indian market.

The domestic players have been slow to take the cue primarily because at the micro level, a clear shift towards attitudinal changeover is still amiss. According to Mr Gul Techchandani, who has served various overseas funds for the last 14 years, in the macro perception of long-term foreign funds, India's current demographic composition in favour of the youth, one of the world's best pools of skilled personnel, attempt towards creating an open society, relative market safety, better evolving transparency and accountability practices have made it different from other markets.

This makes for a case of a sustained rally through the 2004. The domestic investors are likely to join the party in a bigger way in the coming quarters through the primary and the secondary markets.

In the coming quarters, corporate governance along with financial performance will determine the market valuation exercise. Already market is questioning management practices of the corporates, whose published figures are not unimpressive.

Interestingly, the role of the market regulators has undergone a sea change after the large-scale fraud of 2000-2001 compared to the period after the bust of 1992.

This week, which is astride 2003 and '04, may see the benchmark index making a dash for and beyond 5,800 points. For retail investors, the lure of small cap and penny stocks continue to beckon as the overall market takes to a higher trajectory.

In a free market "buyers beware" is the untold dictum, which the bull of the bulls cannot afford to ignore.

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