The Hindu Business Line : 18.6 K, and counting

Political uncertainty doesn’t seem to be bothering the market any more. It seems to have learnt, over a painful transition period following May 2004, that whichever government is in power at the Centre, economic reforms and a free market policy will continue. And this is also why global investors are still pouring money into the Indian equity market, points out RASHEEDA BHAGAT.

If politicians needed to know that they and their utterances seem to matter less and less as India evolves into a confident and mature economy that is forging ahead in the global arena on the strength of its industrialists/entrepreneurs as well as professionals, the signal was clear on Tuesday. The equity market was on fire and the Sensex registered its biggest ever single-day gain of 788 points.

And all this after a shaky start in the morning amid political uncertainty brought about by the uncomfortable prospect of a UPA-Left special committee meet at noon to discuss the standoff on the Indo-US civilian nuclear deal.

But even before the outcome of the meeting was known, suddenly the equity indices took an about-turn and started going up. And when the meeting concluded with the resolution to meet again on October 22, the markets virtually celebrated the two-week respite it had got from the muscle-flexing by politicians.

And the small investors who, Mumbai brokers and market players point out, have been virtually left out of the last 2500-odd points of the Sensex’s crossing the 18,600 mark on Wednesday, were once again left wondering how the equity market seems to know the result of an important political event before it is made public! But, then, strange are the ways of both the political arena and the stock market.

Early polls?

But let’s not forget that the Sensex’s dizzy height comes amidst a near-certainty that the country is headed for an earlier than scheduled election. After all, at the UPA-Left meeting, the Left held on to its position that the UPA government should desist from operationalising the civilian nuclear deal with the US, and that, if it failed to do this, the government could not take its support for granted.

And the Congress, leading the UPA, had made clear its stand hardly two days earlier with the party chief, Ms Sonia Gandhi, dubbing the opponents of the nuclear deal “enemies” of not only the Congress and the UPA but also of “peace and development”. Her message was clear: the Indo-US deal was necessary to fill the huge gap in the energy needs of millions of Indians.

Clearly, there is a change, not only in the body language but also the words used by Congress leaders. Earlier, it was only the Prime Minister, Dr Manmohan Singh, who had been stoutly defending the deal, even as the Left leaders turned belligerent, questioned his motives in pushing the deal and dubbed him a great supporter of the Bush administration, some even hinting that he should be removed as Prime Minister. As Ms Gandhi remained silent, it seemed, even if briefly, that Dr Singh might have to step down.

But now, with Ms Gandhi adding her voice — which, in effect, means the weight of the entire political power of the Congress party — it is clear that the UPA is in no mood for compromise over this issue. She is obviously enraged at the stance taken by the Left that, if implemented, this deal will mean a compromise of India’s sovereignty and foreign relations. Of course, later an “informal” explanation was given to the Left leaders by the Congress that since her speech was made in Haryana, where the Left has no major presence her comments were targeted at the BJP, and not the Left. Too little too late?

Opinion polls

With several opinion polls indicating that the Congress stands to gain in an early Lok Sabha poll, there seems to be a trace of bravado in the Congress camp that it stands to benefit substantially if an election is held around this time. But, then, the record of past poll surveys is, at best, patchy, and those lulled into a false sense of security by such polls — like the NDA government in 2004 — have learnt a bitter and expensive lesson.

But while the Congress seems ready for an early poll, the Left block seems less certain, even though it says the opposite. Consider, for instance, the response of veteran CPI(M) leader, Mr Jyoti Basu, to Ms Sonia Ganghi’s stout defence of the nuclear deal and her certifying its opponents as “enemies of peace and development”.

He was obviously surprised and said that, while she had made a “good speech” at the UN General Assembly in New York on this issue, the shift in her stance indicated the Congress wanted early polls. If this was so, his party would be ready too. But he, as well as other Left leaders know only too well that a repeat of the Left’s spectacular performance in the 2004 general elections is near impossible.

For the moment, both sides are holding on to their positions, which makes an early poll appear imminent, but strange things happen in politics. Peace-broking is a new art and political peace-brokers are available in plenty.

What has changed?

Even with the prospect of an early election, why is the equity market not worried? Remember the summer of 2004 when, after the then darling of the market, the BJP-led NDA, had lost the election, the stock market had tanked as though its defeat meant the end of the road for India? At that time CPI leader Mr A. B. Bardhan had uttered the immortal words: Bhaar mei jayen market (to hell with the market), in a response to a reporter’s question, and the indices indeed attempted to do just that!

So, what has changed between May 2004 and October 2007? On May 17, 2004 the Sensex had a free fall of 565 points – unknown in those days – and trading had to be stopped by the regulator to cool the panic. The Sensex had, on that day, touched a low of 4227; today that sounds incredible, doesn’t it, considering that the bellwether index has more than quadrupled in three years and five months? And all this despite sabre-rattling by politicians creating a climate of political uncertainty yet again. But, surprise of surprises… political uncertainty doesn’t seem to be bothering the market any more. It has learnt, over a painful transition period following May 2004, that whether it is the BJP or the Congress heading a coalition government, economic reforms and a free market policy will continue.

Having opened its doors to the world, the Indian economy cannot step back now. And what did global players see in India when they entered here?

That India boasts of the best and most resilient type of entrepreneurs. That many Indian companies are run as professionally as the best global companies. That the professionals — managers, analysts, accountants, lawyers, technicians and engineers — who make up the solid base of Indian companies — are of the best calibre in the world.

Incredible India

That is precisely why global investors are pouring their money into the Indian equity market through FIIs and other routes. The small and retail investors are too scared, looking at the dizzy heights of the Sensex, to put in their meagre savings in equities at this point.

In this context, the week-long Incredible India@60 celebrations in New York was an eye-opener. To attract investment into India, no longer does the country have to look upon the rich overseas Indian community. Global majors such as Cisco and Vodafone, as well as several other CEOs who have got a feel of the business climate in India, are great believers in the India story and have made huge investments in the country.

NRIs at such fora might still ask silly questions on the quality of the salad one gets in Delhi, but hard-nosed global businessmen and foreign investors are banking on the India growth story, its burgeoning middle-class providing a readymade consumer market within the country (and, hence, insulated from global turmoil), its young, educated and skilled working classes, a legal system that works and a democracy that might compel one election too many, often unwarranted, but which ensures collective decision-making and responsibility.

Response may be sent to rasheeda@thehindu.co.in

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