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Nissar Ahmad

Rural hope: Farmers plant paddy seedlings on a field 25 km from Srinagar. The Government is anticipated to unleash development projects to boost the rural economy. This possibility has raised the hopes of some stock traders. –

If last week’s negative advance-decline ratio and a general trend of gravitation towards downward circuits than upward ones are anything to go by, Dalal Street this week may be ready to lose some of its momentum and cut certain gains.

Perhaps bulls need a breather before a brief pre-Budget rally in the fourth week of this month. But market intelligence suggests that a correction, if at all it occurs this week, may not reverse the direction of the market. A rather paced-out decline would tactically help bulls to regenerate the exuberance around the Budget.

The whole budgetary exercise this time may unusually be long on rhetoric and strong on posturing to meet the hyped-up expectations. But on those signals the market may attempt to head towards a super bubble in the medium term.

The news of a relatively more stable Government has served as a catapult for the market. Growing risk appetite among all sections of investors may have come handy for the market operators in their exercise. But how far can the market be stretched in the short-to-medium term?

In recent years, it has been seen that the Indian equity market can attract and absorb enormous amount of liquidity and speed past the fundamentals by several times in short term and sustain it even in the medium to long term. It has also witnessed reversal of liquidity flow.

Severity of correction and robustness of a sustained rally that India is getting used to may not reflect identical classical movement patterns in the history of capital markets elsewhere. By now, among the global markets, the local market has curved out a niche, which is unique in many ways in the emerging markets too.

But the basic relationship between the real economy and corporate earnings has not stopped asserting itself time and again in the long run.

The economic performance and policy actions may not produce miracle profit numbers for the listed corporations by the end of this financial year. But some of the companies, which were on the brink, have gained lifelines. A seemingly virtuous cycle has also begun, thanks to financial and monetary measures taken in the past 12 months or so.

Some market economists have, however, rediscovered the domestic consumption story and green shoots in non-farm earnings, particularly in rural and SMEs sectors.

Despite vagaries of monsoon, dependence on high doses of subsidy, agrarian and non-agrarian rural economy seems to hold out a promise of making a big difference in terms of taking up growth-drivers’ role in the next one year timeframe.

As of now, the market is expectant because the new Government appears bent on freeing rural hinterland and the mineral-rich tribal heartland from the bondages of rehearsals for revolution – green, saffron or crimson.

Responses may be sent to jayanta_mallick@thehindu.co.in

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