Business Daily from THE HINDU group of publications
Monday, Oct 15, 2007
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Business Daily from THE HINDU group of publications Monday, Oct 15, 2007 ePaper |
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Stock Markets Markets - Outlook Columns - A Ringside View
The liquidity-driven Indian market needs a trigger to correct. But what happens if the flow of money and the “speculative” exuberance do not show sign of receding in the short-term? Quite simply, the Government may provide one – interventions may not be ruled out. According to market intelligence, the quality of inflows – both overseas and domestic – in the recent weeks has raised quite a few eyebrows in the Government circles. Suspicion has resurfaced that a part of the unaccounted for rupee wealth outflow through hawala channels is coming back into equities as overseas investments. The worry over leveraged speculation is not too hush-hush affair. Though an efficient systemic risk management is in place, the risk undertaken by many non-institutional players in the derivatives market has, of late, gone up dramatically. There is a lurking apprehension that if a sudden and serious correction occurs, these leveraged participants may lose shirt. But, the bigger threat is that a normal correction may get amplified in a scenario when market valuations are precariously perched. Political realismAs political realism seemingly got the better of brinkmanship last week, the Government may have created just enough room for redrawing its agenda before early general elections some time middle of next year. A nine per cent GDP growth rate for investors alongside a Budget for aam admi as well as liberal dose of outlays for infrastructure and agriculture should be in order. In view of external shocks, the policymakers are, however, unlikely to take economy’s resilience for granted in the intervening period till the elections. The flood of dollar through the portfolio investment route is threatening to throw a spanner in the RBI’s sterilising and intervention works. The central bank’s concern over money flow through participatory notes is not a new phenomenon. But it surely adds a fresh dimension when the central bank faces an extraordinary situation in controlling rupee valuation against the greenback. It may not be unearthly if the Government and the regulatory authorities launch an exercise in cleansing the market and attempt to curb the portfolio dollar inflow – particularly through participatory notes. If the Union Finance Minister, Mr P. Chidambarm’s fundamental question last week over the rising indices is anything to go by, the punters should get the cue. The small investors have time and again been advised to keep off in the recent weeks. Mr Chidambaram did not hide his lack of sympathy for the speculators too. The next couple of weeks would perhaps test if the apprehensions were real. Meanwhile, the market is expected to respond to quarterly corporate results in relations to the fundamentals. The divergence between euphoric sentiment and hard numbers would determine the immediate term valuations. More Stories on : Stock Markets | Outlook | A Ringside View
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