It is okay for psephologists and media pundits to be spectacularly wrong almost every time about election results. It only proves that both the media and their market research agencies have turned into self-proclaimed ‘limousine liberals’ and lost touch with the grassroots. But when large investors, traders and market operators depend on that information they pay a huge monetary price.
On 17 May 2004, the market went into a tailspin when the BJP-led government lost and it evident that a Congress-led formation wasn’t possible without support from the Left Parties, whose leaders had rushed to every public platform threatening a reversal of economic reform.
This time around, it is the opposite. There is much euphoria about a Congress victory, but this big shining cloud apparently has a black lining. Although nobody wants to discuss specific names, the market grapevine says that some of the biggest traders and market operators have been caught spectacularly on the wrong foot. They had expected a Third Front government or at least an interregnum of uncertainty while the BJP or the Congress scrambled around to negotiate support. Instead, a combination of factors gave the Congress a resounding victory. For instance, the opposition parties cut each other’s vote share in Maharashtra and Andhra Pradesh and people across the country have chosen not to support negative, anti-development political formations thereby dealing a blow to the ambitions of the Left Parties in West Bengal, the Laloo-Ram Vilas Paswan combine in Bihar and the Samajwadi Part as well as Mayawati in Uttar Pradesh. Funnily, investors and investment houses gamble their own money and that of their clients based on the political perceptions they gather from the empty talking heads on television. The few that tour the country to sense the mood of the voting public, also find a way to clamber on to the limousine bandwagon and the consequences are what we saw in the market on 18th May.
Among the big short sellers are supposed to be foreign institutional investors (FIIs) and this was evident from the Nifty trading in Singapore. Some experts suspect that there was no way the Sensex would have gone up 2000 points with two circuit breakers without the cues from Singapore firmly leading the way. Asian markets were all down in the morning. The second set was two legendary traders. One, a traditional bear, who has resurfaced in the market after a long hibernation period and the other, an erstwhile bear who is publicly bullish about his long term investments but cannot resist the urge to take bearish punts when the opportunity presents itself. A third name floating around is a discredited bull operator, who has turned very active over the past couple of months, since the Securities and Exchange Board of India (Sebi) is much too busy trying to salvage its own reputation to bother with market manipulation. A fourth name that is being mentioned is that of a large industry group that is very active in the market. The head of this group routinely makes news for his very public support of a particular political party whose ability to meddle with policy making has been badly hurt by the strength of the Congress’s victory.
Add to this, the rush to invest by all those who were waiting for a post-election results correction before jumping into the fray and you had a breathless and unprecedented bull frenzy that will take a few days to cool down. However, there is no doubt that there is a decisive change in market sentiment, especially of foreigners. Among the beneficiaries, say sources, was the Qualified Institutional Placement (QIP) of India Bulls. Investors who were reluctantly committing $20 million, now are firm about investing twice as much. - Sucheta Dalal