Financial Daily from THE HINDU group of publications
Tuesday, May 18, 2004
Financial Daily from THE HINDU group of publications Tuesday, May 18, 2004 |
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Politics Markets - Stock Markets Corporates blame politicians for carnage Shyam G. Menon
Mumbai , May 17 CORPORATE circles have blamed the politicians for the crash in the stock markets on Monday.
The market may have over-reacted, but has not that always been its nature? Pardoning the bourses' weakness for exaggerated response, they largely attributed the over 800 point-free fall in the Sensex to remarks by the Left parties. "The kind of statements being made are not heard of today even in Communist countries,'' Mr Adi Godrej, Chairman, Godrej Group, said. The market is driven by perception, not reason. Perception of the economy has been dampened by the delay in Government formation and lack of certainty on who would be the next Finance Minister. "It is a bad situation for the country to be in,'' he said. Election result and declining sentiment in emerging markets worldwide are the irreversible causes of the market crash. What can be addressed, is lack of clarity on the new Government's economic stand. "Why can't the Congress be more assertive? Instead of letting matters drift, they should come out with a strong statement,'' Mr Zubin Dubash, Executive Director, Indian Hotels Company, said. "This is some kind of a twilight period,'' Mr Milind Sarwate, Chief Financial Officer, Marico Industries, said. The market by nature attaches importance to emotion and in the short term it cannot be an index of economic health. Also why its response can only be accepted and not questioned. "The previous Government has fallen and the new one has not taken office. Uncalled for policy statement even before the Government is in place is adding fuel to the fire. If FIIs take the view that reforms may slow down and the new Government dances to the tune of various regional parties with local ambitions to fulfil, then we are in for a flight of capital," Mr H.M. Bharuka, Managing Director, Goodlass Nerolac Paints, said. Real test will be when the Government decides on a hike in oil prices. "If they don't raise prices in line with market reality then we could be in trouble. We will get into the vicious cycle of inflation, increasing deficits, borrowings and rising interest rates which will drive away the FIIs and put pressure on the rupee.'' Late afternoon, relief was available courtesy market recovery that helped the Sensex close 564.71 points down. But a colossal amount of shareholder wealth had already been wiped out. Far in excess of what disinvestment - the hottest topic of debate at present - would have earned in a fiscal. Was it not too steep a price paid for a single point of dispute between the reforms lobby and the Left? One senior corporate official, who did not wish to be named, felt disinvestment was central to the bourses' recent health. "It began with the Maruti IPO,'' he reminded. Besides, if the market stands faulted for making a fantastic loss in disinvestment's name, nobody protested when it made disinvestment a success few months ago. The argument that the bourses discredited themselves with Monday's show does not cut ice. Not everyone agreed. "The market was previously driven by many factors. Don't forget the spectacular corporate results,'' Mr Madhur Bajaj, Vice-Chairman, Bajaj Auto, said. "Knee jerk reaction has been one of the banes of the Indian stock market. It does not right-react, it is a flock mentality.'' Mr Dubash took it a step ahead, pointing to the February-March period when the market "tanked due to an over supply" of disinvestment issues. Viewed thus, a limited supply of disinvestment issues against good appetite, should enhance values. "I hope this depressed sentiment is not a long-term phenomenon,'' Mr Bajaj said. Most officials felt, economic fundamentals remain strong and even the retraction of FII money should be read with continued good ratings for the Indian economy by international agencies. "The market is over-reacting to statements. The Common Minimum Programme is yet to be chalked out. The fundamentals of the economy are strong and growth is continuing. I think, things will return to normal,'' Mr Naveen Jindal, Joint Managing Director, Jindal Steel & Power and a Congress MP, said.
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