The Hindu Business Line : After politicking, it's time for stocktaking

INVESTMENT officials of the India-registered FIIs had a tough time on the weekend explaining to their overseas clients that free power to Andhra Pradesh farmers might not herald competitive race for subsidies among the States.

Large brokerages were hard-pressed to meet frantic margin calls till late hours on Friday. The domestic market suffered from one of its worst fears of a drying privatisation tap.

As a section of the market was weighed down by the baggage of popular fallacies about capital and communists, it would be difficult for them to swallow a new pill of alliance politics.

Despite China and home experiments in West Bengal, Kerala and Tripura, the relationship has remained one of mutual suspicion and mistrust.

Surely, perceptions would not change overnight.

This week the stock market would move according to the change in nuances of perception.

By Tuesday, the Left is set to declare whether it would share power with Congress for the first time at the Centre. In other words, whether it would participate in the Government or only support it from outside. The common minimum programme (CMP) is also slated to thrash out the economic agenda of the emerging alliance. These two events are sure to influence sentiment of the market. Unless proved otherwise, the market (and a section of corporates) is wary of testing alternative ways of reforms.

The week closed with sharp losses in valuation of the stock prices across the board. The Nifty futures traded at a substantial discount to the spot. The FIIs have sold heavily.

A process of recovery amid volatility does not appear to be on the cards this week. Neither the volume nor the FII investments are going to cascade. Dalal Street would drift if the CMP does not squarely address its concern. If the Left decides to support the Government from outside, uneasiness on the Street is likely to increase.

Worldwide the stock markets did not end the last week in good shape and the funds faced significant redemption pressures.

Worries over crude oil prices and apprehension of interest rate rise by the US Federal Reserve as early as in June have rendered the markets nervous.

In the local market, though the broader economic issues were temporarily upstaged, the oil price rise, interest rates, subsidies, employment, agricultural and industrial growth, taxation and deficits would soon take centrestage from this week onwards.

Marketonomics: The stock market's sense of economics is skewed in favour of its own priorities related to the listed entities and the sectors they are in. The new Government's economic agenda and forthcoming credit policy and the Budget proposals would be eagerly awaited for clearer signals.

In the near term, the market wants to be sure of direction of reforms and consistency in the policies.

The impression about the stock market including its idiosyncrasies as reflected by the new regime would also be important for the medium term outlook. Would the FII fund flow be dismissed just as "hot money"? Or would the plummeting indices per se be regarded as a handiwork of manipulators only?

Answers to questions like this would be unfolded in actions and not merely through semantics.

Meanwhile, in a falling market, increasing margin calls may accelerate value erosion and heighten the confusion.

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