Financial Daily from THE HINDU group of publications
Monday, May 10, 2004
Financial Daily from THE HINDU group of publications Monday, May 10, 2004 |
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Markets
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Commentary Columns - A Ringside View Dalal St awaits poll verdict Jayanta Mallick
THE bulls were not smiling during the weekend; only a grimace remained, which they could partly protect by hedging on the futures. The FIIs, engine of the bull bandwagon, were net sellers in the cash segment last week. The domestic mutual funds also sold more than they bought. Smitten by flaring crude oil prices, concerned over impending interest rate rise in the US and the Chinese slowdown, the stock markets world over closed weak. FIIs were understandably cautious in the domestic market. They did not have the heart to pump in more money as they possibly could not fathom the political risk of the alliance that may become the winner this week. On the economic front, the idea is gaining ground that the carrot of 8 per cent GDP growth may not singly drive the market post elections. The busy season credit policy is expected to take a hard look at the interest rate regime later this month. Many industry economists admit indications are that rates are bottoming out. The retail loan floodgate may not also be kept ajar for long, courtesy recovery problems. The most interesting observation on India's economic efficiency came from none other than the US Federal Reserve Chairman, Mr Alan Greenspan. He mentioned that despite low wage and high savings, neither the efficiency of capital nor the living standards improved much in India. The votaries of reforms in the domestic stock market, particularly with regard to the element of right to hire and fire, might find it difficult to digest. But the underlying message in Greenspan's observation was that India was yet to increase the efficiency of capital and leverage its domestic market potential fully. This is even more significant in the context of the times when he is sounding concern over the US fiscal deficit and a mild inflation and the US stock market is wilting in the apprehension of a modest interest rate rise, which may bring the Fed's overnight funds rate up to zero in inflation-adjusted terms. Last week, the section of domestic market participants, which has a bias for NDA's version of reforms and development, was guarded in its exposures and financial commitments. This was amply indicated in the unusually high discount to cash in the Nifty futures and increase in overall outstanding positions in the derivatives. This week, the market will remain on the tenterhooks. The preoccupation is likely to be only the election results and formation of the Government. All other criteria temporarily may be put to a backburner. First, the market would look for clues in the Monday's exit poll indications, then the actual numbers on May 13. The assumption is that the opinion polls and exit polls would perhaps lead the market to tank till the final results are out on Wednesday. In case of an unclear verdict, market would tend to tread nervously till the formation of the Government. All these are sure recipe for volatility and low volume as the bargain hunters would prefer to sit tight. But, if the electoral verdict is clear, market will not sit back, at least for a few days.
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