• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

The sharp fall in stock prices in the last two weeks is a confirmation of the validity of a principle long held about the stock market: That neither monetary loosening up nor policy-makers striking an aggressive posture before television cameras is of much help when the market is seized with fundamental doubts about near-term earnings prospects. In the past two weeks, global markets have witnessed massive injections of liquidity by central bankers, besides fiscal initiati ves by governments to bail out troubled financial institutions. The stock market, no doubt, perked up momentarily on such positive news, only to drift downwards quickly. The Indian policy response in recent times too, has been on similar lines, with the emphasis on liquidity enhancing measures besides the Finance Minister doing his bit by advising investors not to panic and drawing attention to the truism that for every seller there is also a buyer.

While the market did climb for a day, the rally proved short-lived. In no time it gobbled up the rate cuts to resume its downward drift. The fact is that a cut of a percentage point or two in the cash reserve ratio or opening up new lines of credit for liquidity-strapped mutual funds cannot restore valuations to the earlier dizzy levels. The selling pressure exerted by foreign institutional investors seeking a quick exit from the stock market has compounded the Indian predicament. However, for all their exertions, these institutions have been able to liquidate only about 20 per cent of their accumulated holdings. Even so, the liquidation has seen their portfolios shed, by September, a little over 40 per cent in value from the levels last December, when the market was at its peak. This is testimony to the market’s relatively shallow nature.

Clearly, the nation has not quite capitalised on the opportunity provided by global investors entering the domestic market to put the economy and the financial markets on a robust footing. The strength of the market had clearly come from overseas. For now, the Government must recognise that there is no second wind in sight for the market to regain the lost momentum. Rather than trying to use monetary policy tools to talk up the market, the Government should focus on helping enterprises overcome the daunting challenges they face in translating investment intentions into reality. The Nano’s difficulties in finding a home for itself in West Bengal are perhaps the symptom of a larger malaise afflicting governance in the country.

More Stories on : Editorial | Stock Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line