Financial Daily from THE HINDU group of publications
Sunday, Jun 06, 2004
Financial Daily from THE HINDU group of publications Sunday, Jun 06, 2004 |
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Investment World
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Insight Markets - Stock Markets Industry & Economy - Budget Columns - In Focus Between now and the Budget... ... What will happen to the market? Krishnan Thiagarajan
In Mumbai, the Finance Minister on his much-hyped two-day trip to the financial capital met up with FIIs, industrialists and bankers to assure them that the United Progressive Alliance Government was committed to reforms and also allay any fears or misgivings among market players on this score. On the same day, however, in Delhi, the Left parties represented by Mr Sitaram Yechury, CPI (M) Politburo member, were seen participating in a rally organised by the Airports Authority of India Employees Union. He was protesting against the move to privatise the Delhi and Mumbai airports. Early this week, the Civil Aviation Ministry had lowered the cap on foreign direct investment in airports to 49 per cent from the 74 per cent allowed by the NDA Government. This was widely seen as a move to appease the Left parties and carry on with the bidding process for the modernisation of the Delhi and Mumbai airports. To compound matters, the CPI (M) General Secretary, Mr Harkishan Singh Surjeet, also dashed off a letter to the Civil Aviation Minister, Mr Praful Patel, to "shelve any plans to privatise airports in our country". The protests from the Left clearly reflect an apparent dissonance with the policy moves of the UPA and this has set the Government working on a wrong note. No wonder, despite the attempts by the Finance Minister to soothe the market, it turned out to be yet another choppy week at the bourses. The BSE Sensex and S&P CNX Nifty stock indices remained volatile through the week with the Sensex witnessing an intra-week swing between 4924 and 4760 points. It closed marginally higher by 54 points (or 1.1 per cent) at the end of the week. Between now and the Budget, in the first week of July, it is likely that several pending policy decisions in different sectors will come up for review. Given the hardline approach of some of the coalition partners, the approach to policymaking will be closely watched by the market.
It also froze the Duty Entitlement Passbook (DEPB) scheme with effect from March 27 and supply of steel to the small-scale sector at a subsidy of Rs 1,500-2,000 per tonne lower than the ruling market price. The decision of the Minister of Steel will be closely watched on the restoration of the DEPB scheme and the lapse of the subsidy to the small-scale sector by the end of this month.
The stance of the new government on reducing the subsidy on LPG/kerosene will be tracked closely. The Petroleum Ministry has deferred the decision on petroleum product hike till June 16, even as OPEC (Organisation of Petroleum Exporting Countries) raised output quotas by two million barrels per day in June. As crude oil futures are expected to rule strong, the tricky decision of petrol/diesel price hike will have to be taken sooner or later. There are also indications that the Petroleum Ministry is still mulling over various short-term proposals such as the Customs duties on petroleum products, retaining the LPG/kerosene subsidy and even a petroleum market stabilisation fund to keep the petrol product hike to the minimum.
The first signals coming from these Ministries are not too encouraging. In fertilisers, there is the possibility of a review of the distribution decontrol in urea. At present, dealers licensed to sell urea in a State have the flexibility of selling 50 per cent of it anywhere outside the earmarked area. According to the Fertiliser Ministry, this has led to weaknesses in the distribution system, particularly in the eastern and north-eastern parts. This flexibility in urea distribution is to be reviewed soon. In sugar, there has been speculation that the quantum routed through the PDS (public distribution system), which has been on a decline, may be stepped up again. Any increase in this levy sugar obligation to PDS, which currently stands at 10 per cent, will hurt the profits of sugar producers.
In Mumbai, the Finance Minister tried to strike a note of optimism by highlighting that six projects with a capacity of 3700 MW have achieved financial closure in the last 10 weeks and 10 more with a capacity of 6867 MW are in the pipeline. But bankers privately admit that the key to future investments will hinge on the amendments made to the Electricity Act. Unless clarity emerges on the policy preferences of the new Government, it may be safe to assume that the market will remain choppy, at least till the Budget is announced. With the market remaining turbulent right through the key moves of Cabinet formation and the announcement of the Common Minimum Programme, only positive policy surprises can undo the exaggerated fears factored in the market at this juncture.
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