The rathyatra to profits was derailed in its tracks on Thursday at the Sensex level of 3830. Earlier, operators had built up positions uptil Tuesday on an optimistic note; but, caution descended on Wednesday itself looking at the piteous position of BJP. Later, as Jayalalitha turned more truant, it was clear that BJP after all may not be able to take the reins. In response, the Sensex slipped from 3791 to 3717 over the last two days of the week.But, note that there was no panic selling here. Actually as the hopes for a BJP government were belied, the disappointment should have led to a far more precipitous fall. However, the fall was only moderate and could have as well been accounted by end-account consideration. May be the market is taking the Jayalalitha episode in its stride in a matured fashion. With New Delhi witnessing new developments every hour, everyday; the need of the hour is for a government to be installed fast; and the new government should start rolling. And, that is good enough forthe stock market to keep its head up.
However there is no running away from the fact that the new government has an in-built element of uncertainty. And the market may well learn to live with that reality.
What matters is that the new government can be no worse than the last one. And the last one was not bad, honestly. Especially, the finance and industry ministries covered a lot of track. However, the same can not be said that of other ministries like agriculture, commerce, power and human resource development and infrastructure.
And again the need of the hour is for action. Time for words is over. While speed matters, content matters even more. But markets could well accept the fact that the new government will dither on PSU disinvestment, exit policy, liberalisation of financial sector further, so on and so forth. What should gladden the investors is that there is no escape for any government from tackling the core issues, which stare the nation on the face. Talking of these, demand sidestimulation would prove to be more difficult than is being realised now. One solution could be to catalyse productive capacities to increase supplies at lower costs. But, given the lukewarm demand picture, the government will have no option but to give extra incentives to industries to rev up the production engines. It could come as slab-wise excise duty concessions and perhaps further concessions in depreciation.
Intricately linked to demand stimulation lies the growth of government revenues. Driven to desperation the government might think of jacking up taxes; but would soon realise that this is not a feasible option. The new government will actually get a shock treatment, when it has to foot the bill for charges like the arrears for government servant's salaries and others.
The present government has conveniently rolled them over to the next year to dress up the fiscal picture for IMF consumption. In a way this shock treatment would be good, as was the one in 1991. Politicians will realise thecost one has to pay for economic imprudence and political populism. And that could force the new government to take a more realistic approach to subsidies and similar give away. By Monday, the marketmen would have realised that the new government will have to fight with their backs to the wall.
And therefore the market may have not much cause to go deep south. In fact, I suspect traders are not too bothered. Rationalisation as essayed in this column could make good bedtime reading. But when it comes to action, I know traders would be back on Monday with their plans to take the slide down the Sensex, if necessary. Push down the scrips and short sell. Drive them down as far as they will go. And UTI will join them in selling. So it is time to act now ; book your profits under your belt, before it slips away. Because that is the only way to make money. Not, wondering who the next FM is!
