The Hindu Business Line : After a strong recovery

AFTER three weeks of downward correction, Dalal Street saw a positive blip last week. The last trading day saw all prime indices register their highest one-day gains after May 2004. The advance-decline ratio of 1625 to 722 showed broad-based surge. The Rs 198.80-crore net positive investments by FIIs on Friday after five consecutive sessions of net negative investments were a welcome breather.

The BSE Sensex shot by 3.82 per cent through the week while the S&P CNX Nifty moved up 4.31 per cent. The broad-based S&P CNX 500 gained 3.86 per cent. BSE indices for consumer durables, FMCG, healthcare and IT rose by over 4 per cent.

However, a pull back rally on relatively low trading volumes did not convincingly indicate the end of the corrective phase.

The market is looking forward to several policy initiatives in February including the Budget announcements. As a result, it is likely to turn news-driven and liquidity may play the second fiddle.

There is very little possibility that Dalal Street would see a dramatic turnaround in the liquidity scenario. The low overseas fund flow is likely to continue for some time.

Domestic compulsions are yet not so strong that fresh flow of money would come at a higher base.

The Finance Ministry is well aware of it. The proposal for directing locked up liquidity in superannuation funds to the stock market may not be a cakewalk. The political opposition apart, the financial system does seem to be geared up to play in the equity market. Banks had been allowed to invest 5 per cent of their incremental deposits in the equities some time now. But very few have ventured to test the waters on Dalal Street.

In some aspects the market may have matured and become safer since the last major fraud in 2001. But small investors, who have borne the brunt of several frauds, have reasons to feel cagey.

Economy needs a greater depth in the equities market, which in turn needs to be safer and more transparent.

For the last three quarters the corporate performance in terms of numbers has been better. Even then equities have not attracted domestic savings in line with the growth in numbers. Market players admit that the quality of corporate governance and transparency have a direct bearing on the investor trust.

The market is expecting that the Finance Minister, Mr P. Chidambarm, who himself expressed dissatisfaction over the corporate governance issue, would push the regulators towards better enforcement.

It is understood that establishing a trail of accountability, from boardroom to the Street, is on the Government's agenda for the 2005-06.

Should this happen, the memories of vanished companies, US-64 and Global Trust Bank may gradually go off.

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