Samvat 2070 Begins On
A Wing And A Prayer
The Stock Market, nominally at an all-time high, is reviving
on American money in a few, perhaps 15 ‘defensive’ Sensex stocks. These are
stocks that benefit from rupee weakness such as Pharmaceuticals and IT.
The wider sectors of the stock market could climb ‘A wall of
worry’ as Ramesh Damani, a well- known stock market veteran puts it, and become
a broad-based bull market. Damani has
plumped for a Nifty level of 7,500 by next Diwali, some 25,000 on the Sensex, and does not see a significant downside given
the direction the political wind is blowing. Damani says sometimes the market
starts to rise across the board in highly adverse conditions anticipating
better times with uncanny prescience. This year, says Damani, Iran has
out-performed impressively despite high inflation, political churn and a weak
economy.
Our market, like others that break out, would need to
believe however that good times are around the corner. This must be why the
Sensex and Nifty climbed up from lows in August to all-time highs today, after
over 5 years. And this could come from the underlying excitement of
anticipating a Narendra Modi led central government in 2014. This is the
verdict of iconic bull and billionaire investor Rakesh Jhunjhunwala who thinks the NDA could bag as many as 240
seats this general election!
But as things stand, things are weak to worse in business
and industry, in the direct equity market, in the gold and silver traditional
investing community reeling also from recent losses, and in mutual funds facing
massive redemptions.
The so called ‘equity
cult’, growing between the period June 2004 to January 2008 when the Sensex
climbed from around 3,000 to 21,000 points, has been over for years. It has
been shot through with huge losses and pessimism since the world financial
meltdown in 2008, though it never fell below around 8,000 points on the Sensex.
But the sense of the FII mood is that though the Indian
stock market represents some 2% of the valuation of world stock markets, it has
failed to quite attract 2% of world investment through all the UPA years. This
may be about to change post-elections.
However, the big fear is how the markets, and indeed the
Indian economy will react to the US Federal Reserve commencing its tapering
programme scheduled now for 2014. Will
the investment flows that the Indian Government depends on to not only boost
the stock market but also to manage its current account defict (CAD) manage to
withstand the changes it will bring?
Even as the FIIs are investing a smattering of the massive
stimulus money from the US now, which is pushing up the Sensex numbers, the Indian institutional
investor has continued to sell on every rise. There is no confidence in the stock
market on the prospects of India Inc. domestically as yet. This, despite
periodic attempts to talk up the market by the Finance Minister, the RBI
Governor, various market veterans. The last category have a vested interest, of course, because
they are mostly also heads of major
brokerages. Still, until the retail investor returns, no bull market can
sustain. But Jhunjhunwala thinks the
retail investor is bound to come as the market climbs higher.
The current malaise boils down to the fact that the Indian Government
has been completely listless, confused and paralysed these last few years. The
new high is being called ‘nominal’, with FIIs putting in $15 billion into a
handful of stocks over Samvat 2069 just
past, while locals have sold $10 billion worth on every rise. There is no
broader excitement because the bulk of equities are at figures that would
aggregate to a Sensex level of 10,000 to 13,000, while a miniscule handful are
outperforming based on foreign investment.
Other stock market worthies, while not blatantly rooting for
a Narendra Modi led BJP government, are saying they don’t think a third-front
government supported by Congress will be good for the market sentiment because
its stability will be questionable for a start. Nor do they think Congress will
have the numbers to lead a strong coalition afresh in 2014.
This kind of prognosis appearing from every opinion poll as
well, has prompted Congress to appeal to the Election Commission to ban trend
polls, calling them unrepresentative and unscientific. Of course this is
because all of them have consistently been predicting a precipitous Congress
decline.
Narendra Modi on the other hand is viewed as a panacea for
the troubles of business and industry, for stalled GDP growth, for our weak
response to terrorism and cross border infiltration, for the revival of the
financial markets including the worth of the rupee, the revival of exports etc.
The extent to which his vigorous campaigning on myriad issues that matter to
India and Indians has influenced the market is definitely indicative of the
change to come.
But of course, there are people both in India and abroad who
do not want to see a strong India led by a visionary leader who is decisive and
efficient. This would prevent many of these people from exploiting the troubled
situation that is prevalent today, and threatens the status quo, even if it is
in terminal decline. For these people, a campaign of relentless vilification and vicious name-
calling has become a staple in the hope that it will influence the voter
against Narendra Modi and his apparent desire to lead the country out of the
morass it finds itself in.
All in all though, Samvat 2071 should see significant gains
in the stock markets.
(925 words)
November 4th,
2013
Gautam Mukherjee
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