BOMBAY, 16 February 2004 — Over the past few days, the stock markets have managed to attract front page news, alongside news of elections, cricket and the infamous Telgi scam. The bourses are today well over the 6,000-mark yet the question in everyone’s mind is — is this a pre-election boom?
The markets have had a lot of “feel good” factors which have helped the Sensex soar to these levels. The forthcoming elections being the biggest factor which is actually whipping the market on this fast gallop. The whip is being wielded by the ruling political party which is trying out all tricks possible to ensure a repeat victory. The two mini-budgets and the mini-Exim Policy are pointers to this fact.
The overall perception is that the government wants to win these elections too. And when it presents its report card to the voters in the coming months, its list of “achievements” will include the performance of the economy and that of the Indian markets. These two are essential for victory.
But now there is general feeling gaining ground that the government is whipping the horse too hard. The carrots being dangled right now turn into a hard hitting stick once elections are won. Mostly all agree that it is best to sell stocks before the elections as post-elections, the government might become tough, weaning away all the goodies which it has happily doled out today. Analysts also confer that the government is currently being driven by “political” sense and not “economical” sense.
Market punters advice that it in the view of uncertain of sustained gains, it is best to book profits at every rise. A section of the market feels that while uncertainty toward the elections is inevitable, any major reversal in the reforms process is unlikely in the post-election scenario.
So when are the much awaited elections scheduled to be held? The general consensus is that though at this pint of time, the election dates are not yet fixed, it is estimated that polling could be spread over four to five phases between mid-April to early-May 2004. And in this tenure of pre and post elections, the bourses are expected to remain volatile, atleast till this uncertainty of the elections are over. There is also a rising section which is now doubting the “feel good” factor which is being projected by the government. Many have now started looking at these economic figures with a lot of skepticism. Infact the Central Statistical Organization put out its latest report and it has stated that the farm sector would drive the economic rebound in FY 2004 due to a bumper crop this year. The farm sector, which accounts for a quarter of GDP, is expected to grow 9.1 percent in FY 2004 after a drop of 5.2 percent in the previous year. GDP is expected to grow a scorching 8.1 percent in 2004, compared to a paltry 4 percent growth in FY 2003. And the latest economic data released by the government shows that industrial production grew 6.2 percent in December 2003, boosted largely by manufacturing sector growth on the back of the best monsoon in a decade, which stoked domestic demand. Though the growth of December is lower than the growth rate of November which was at 7.4 percent, analysts are not too perturbed as they feel that the numbers will improve in the last quarter of FY2004, led primarily by growth in the agricultural sector.
Market punters say that investors can safely expect returns to the tune of 15 to 25 percent from equity markets though it is imperative to understand that equity investments will continue to be inherently riskier than investment in other assets.
Given these circumstances, it is best for investors to exercise caution and in the present market, it is best to book profits.