The Hindu Business Line : Sensex may bounce back

Where is it heading?: A bull statue installed at the BSE seems to be looking for clues from the Reserve Bank of India and the US Federal reserve meet this week that could set the tone for global markets. –

The gut-wrenching correction on Dalal Street in the last two weeks did not result in a single broker-level default. The risk management system stood rock solid despite severe problem in electronic transfer of funds. Maybe, large number broking houses had faced acute liquidity crunch, at least for three consecutive days. But, there was no systemic crisis.

The benchmark index and a few other indices have returned to recovery trail too. This week, market is likely to recover further. It may not be surprising if the Sensex bounces back by another 1,000 to 1,500 points.

So, it’s the global financial market and the excesses in the local market that had caused the savage correction. Soon everything would perhaps be hunky dory. Excesses are dead. Long live excesses!

Flawed F&O list

If you thought that after the demise of badla in 2001, speculative instinct – bordering on gambling – was consigned to the dustbin of history, Dalal Street has proved you wrong. Market intermediaries are concerned about volatility and overindulgent leverages. The Association of National Exchanges Members of India feels the margining systems are flawed and the stocks futures segment of the market needs an urgent re-look.

Mr Nirmal Agarwal, President of ANMI, told Business Line that his organisation is going to write to the market regulator this week regarding certain systemic weaknesses that came to fore of late regarding margining system and F&O segment.

“There are a number of stocks – roughly about 50 – in the stocks futures segment, which had generated over-leverages in system. Their inclusion and continuance in the derivatives segment is questionable”, he said.

The electronic money transfer systems, such as RTGS and NEFT, have not only functioned inefficiently, but also threatened to affect the settlements in the equities market. “These, part of the banking system, could not work smoothly earlier also in crunch situations”.

Matured market?

Bailouts are anachronisms in free capital market. But, he felt that the derivatives market lacked level playing field – a section of participants are exempt from the margin payment, while others are not.

There were un-addressed questions galore about the efficiency and maturity of the Indian financial system after March 2001, when the systems were last challenged. Seven years down the line, things have changed a lot. But, loopholes still exist.

Tryst with capitalism is not all about feel-good bandwagon. One begun to suspect that an orderly growth of capital market was perhaps justified by soaring key indices and reckless valuation jigs – whether in the primary market or in the secondary market.

The recent lessons may have been costly for large number of participants and intermediaries. But these have driven home a simple but forgotten truth – Equity Street is not one-way.

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

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