The Hindu Business Line : Market unlikely to shed negative bias

Confidence shaken: A stockbroker reacts as he watches share prices at a brokerage in Mumbai on Friday, The BSE Sensex tumbled below the 16,000-mark for the first time since September 17, 2007 –

When in 1981, Mr Antonie W. van Agtmael, then deputy director of International Finance Corporation, coined the phrase “emerging markets” he had in mind those “third world” economies, which were showing signs of embracing market economy. He had felt that the former epithet discouraged global investors from putting money in some of them with potential.

Initially, the definition applied to stock markets in countries with a cut-off of $10,000 per capita income. But soon the numerical references as well as statistical measures faded and emerging markets came to mean emerging economies, according to a recent Knowledge@Wharton report.

In more than two-and-a-half gone by decades, the emerging markets, particularly the four – China, India, Brazil and Russia – have created a base for a new world economic order. “The India story” remained firmly entrenched in the unfolding emerging matrix.

Euphoria and despair

But until recently, at the core of the changing order was the faith in the capitalist system and its course that has been nurtured and developed after the “great depression”. If the euphoria of 2006-07 appeared real and held out a promise of a smooth sail of the capital into the far corners, the current globallised jitters stem from the disbelief that the core could turn wobbly.

The Sensex, the Indian benchmark, has been beneficiary of the name game and the associated hype to attract investors and higher asset valuations.

Goldman Sachs’ BRIC indeed delivered, rather over-delivered. BRIC economies contributed 15 per cent by 2007 against the biggest investment banker’s projection of more than 10 per cent of global GDP by 2010 and attracted billions of dollars of investments.

Mr Van Agtanael is now the CEO of Emerging Markets Management, which manages $20 billion in institutional investments and Mr Henry M. Paulson, former chairman of the Goldman Sachs, is now the US treasury secretary.

Interestingly, Mr P. Chidambaram, the present Finance Minister, along with other lawyers held a brief for the broking community against imposition of fees by the regulator in 2000.

The current bearish trend in equities has a little to do with these defenders of markets, but every thing to do with the past excesses of the financial market itself, be it on Wall Street or Dalal Street.

The market’s confidence is shaken now by uncertainty. The technical charts signalled downhill movement and were causes for liquidity to dry up. Ironically, the irrational exuberance and speculative binge of the recent past was responsible for the charts to plot an uphill path in a record time.

In the short-term, market is unlikely to shed its negative bias and lack of buying may tend to take the market downwards. It is difficult to forecast in the near-term when a consensus of sorts would emerge about the fundamentals and the valuations and the resistance would come about.

But the speculative trading cult may go in for a summer holidays in remembrances of self-inflicted wounds and lost opportunities.

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