Sucheta Dalal :Without Renewed Interest From Foreign Investors No Feel Good Factor
Sucheta Dalal

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Without Renewed Interest From Foreign Investors, No Feel Good Factor  

It appears that nothing pleases the market anymore. Jaswant Singh’s fresh round of concessions in the interim budget only led to a further fall in prices. Stock prices were down across the board. The benchmark BSE Sensex closed 75 points, down 1.31 per cent, and Nifty fared far worse — down 2.25 per cent. The midcap index of NSE fell by a huge 5 per cent.

The nervousness in the market is now palpable. January was the first month of the present bull run, which ended with the major indices closing lower than in the previous month. And trading for February has also begun on a depressed note. In the last two trading days, FIIs have turned into big sellers. On January 30, they reported net sales of almost Rs 30 crore and on February 3, the SEBI website reports that FIIs were net sellers to the tune of a massive Rs 436 crore of equity (they bought Rs 694 crore worth of stocks that day and sold Rs 1130 crore). Yet, money managers insist that the India story hasn’t lost its shine. In a globalised economy, some of the beating taken by Indian stocks is certainly due to external factors such as the slowdown in Foreign Institutional Investment (FII) and the panic and disruption caused by the chicken flu. For instance, on January 2, the Thai market had fallen a whopping 4.5 per cent but bounced back by 4.86 per cent the next day. The waning of FII interest in emerging markets has to do with factors other than India, and investors are praying that the slowdown in investment is only temporary. The more worrying issue for the markets is the absence of retail investors. Despite the big bull run, retail investors have remained out of the market, preferring to sell rather than buy, and even day-traders are operating on shorter and shorter investment horizons, exiting at the first sign of trouble. This, coupled with unreasonable expectations, is taking its toll on trading sentiment.

For instance, on budget day, the market opened stronger, on expectations of more sops for taxpayers and a cut in excise duty for manufacturing. When it seemed that the presentation of the Budget may be marred by opposition protests, punters began to unload. And, once it was apparent that the interim budget was more a statement of the BJP government’s good intentions than real concessions, the selling became more severe and dragged the Sensex down by over 140 points to a low of 5550. With day traders staying on the sidelines, the trading turnover for the day was also lower. Almost all blue chips stocks were down, including a host of public sector undertakings like GAIL, who are planning mega IPOs (Initial Public Offerings). Among the big declines were ACC, Gujarat Ambuja, Tata Power, Zee, State Bank of India, Zee, SAIL, HPCL, ONGC and Tisco. However, power and shipping scrips were buoyant following the announcement of specific concessions for these sectors.

There is a possibility that the mood of the market may not improve in the coming days, when punters digest factors such as the extension of long-term capital gains tax to three years and some specific concessions to sectors such as shipping and power or realise that it was fanciful to expect major changes in an interim budget. The fact that fiscal deficit has been controlled at 4.8 per cent of GDP and revenue deficit at 3.2 per cent, as well as Mr Singh’s promise to rein in inflation at 4.3 per cent are additional positives. On the other hand, the impact of further bailouts, such as the Rs 15,000 crore allocation for restructuring the beleaguered cooperative banks (to be shared by the Centre and the states) and the merging of 50 per cent of dearness allowance of Central government employees, will be viewed negatively. What is, however, clear is that the finance minister may have presented an election budget, but without renewed interest from foreign investors, Jaswant Singh can forget about the stock markets relaying the feel good factor through surging share prices.

-- Sucheta Dalal