Markets expect economy-friendly budget

By Oommen A. Ninan

MUMBAI, JAN. 13. The stock markets may continue to remain range- bound as the participation of foreign institutional investors and domestic institutions is minimal. Now the market movements are determined by budget expectations and participants are looking forward to an economy-friendly budget than a market-friendly one.

The Bombay Stock Exchange 30-share sensitive index (Sensex) dipped by 147.15 points to 4036.58 on January 12 from 4183.73 at the end of the previous week. On the National Stock Exchange, the S&P CNX Nifty index moved down by 38.85 points to 1287.05 from 1325.90. in the same period.

On the last day of trading last week, select heavy weights such as HPCL, Bajaj Auto, Dr. Reddy's Lab, Infosys and Satyam helped the indices to rule firm. The week witnessed a rise in prices of oil stocks as the Finance Minister promised boosters for the petroleum sector in the forthcoming budget along with divestment of Government's equity in public sector oil companies. Otherwise, the market was volatile or dull without much participants.Even after 50 years of independence, the country has not recovered from the `East India Syndrome' as the stock markets continue to remain at the mercy of FIIs and Nasdaq. Even the Bharat Shah episode reinforces the view that the market lacks depth. ``The least the Finance Minister, Mr. Yashwant Sinha, could do in this budget is to strengthen the market by allowing the long term investors like the provident fund and pension fund to participate in the equity market and should also increase the amount allocated by institutions such as Life Insurance Corporation for equities,'' said Mr. V. R. Srinivasan, Managing Director of R. K. Chari Stock Broking.

The FIIs who have a short term outlook are playing havoc with the market even though their share in the total market capitalisation is less than 10 per cent, Mr. Srinivasan said. Despite the good performance, Infosys was beaten down on the fear of a cut down in information technology spending by U.S. companies due to possible slowdown of the economy. But according to industry sources, this will be a blessing in disguise for the top rated IT companies as this will give them an opportunity to increase the off-site and off-shore businesses which have a higher bottomline.Yet another factor affecting the Indian market quite often is the unfounded rumours. Himachal Futuristic (HFCL) bore the brunt on this score in the week under review. This again reinforces the absence of a long term investor who provides stability to the market. Indian institutions have long been used to a `spread game' by borrowing at lesser rate and lending at higher rates. They have not changed with the time by taking exposure to equity and this is one of the reasons why Indian markets are shallow.

The predominance of short term players in the market has changed its colour with every investor coming in for a quick buck. Traditionally the equity markets give return over a longer time and in the last few years this aspect has been totally forgotten. The expectations of unrealistic return within too short a period has encouraged many a player into taking leverage exposure in the market at times at the cost of their own family. The recent incident in Ahmedabad where a family of five committed suicide in the backdrop of huge losses suffered in the market is a case in point. The Government should wake up to this reality by strengthening the mutual funds and other investment institutions. In a country like India, preponderance of institutions as opposed to individual investor is a better model.

``Unlike in the past when there used to be a rally prior to the budget, this year the rally - if there is one - will most probably will occur after the budget,'' said Mr. Srinivasan. None of the corporate news is going to make any positive impact on the market and the only event which can correct the course of the market is the forthcoming Union Budget. There are no great expectations in the form of fiscal sops as both direct and indirect tax rates are close to the bottom. However what can give impetus to the market is clarity and time bound operation in the matter of reforms especially the disinvestment of public sector enterprises.

``The Government should attack the fiscal deficit ruthlessly without crowding the money market,'' Mr. Srinivasan added. There is a strong case for reducing interest rates and the Government should do everything to make the Indian goods globally competitive. All along the approach was to spur local demand and it is here that India has to learn a lesson from China. Enabling the Indian industries, the Government can attack the twin problem of deficit and Balance of Payments (BoP) position and also indirectly avoid closure of units which are unable to withstand competition especially from China. It appears that the Government has overlooked the socio-economic aspect of opening the economy along with the misplaced priorities in terms of which sector need to be propped up.

The Gesco takeover damp squib with Sheths and Dalmias smoking the peace pipe. However, the managements which are in a similar position better watchout as the new generation is flexing its muscles to take them head-on for shoddy performance. Even though there are not many companies but institutions should take the lead to proactively seek change in management of those who are unable to deliver. It is time shareholding and management are distinguished and those who do not perform are better shown the door irrespective of the shareholding. There is no news as yet on the Bombay Dying front. However, Mr. Nusli Wadia better not go to sleep and instead work on value enhancement. It is worth mentioning the point made by management guru Dr. C. K. Prahalad. Time and again he said Indian companies were more imagination- constrained than resource-constrained. Indian investors today look forward to globally competitive Indian companies.

The Reserve Bank of India should take a cue from the move of the U.S. Federal Reserve to cut interest rates to minimise the risk of slowdown of the U.S. economy. Unfortunately in India, policymakers react only to a situation and are never proactive. These days the problems are different and therefore the solutions have to be unorthodox and imaginative. The market expects that Mr. Sinha addresses all these in his budget to make the economy more stronger and effective.

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