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Drumbeat: Ad Buzzaar
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Thursday, June 4, 1998
A knee-jerk reaction
Foreign institutional investors are reported to have been heavy sellers in the bourses after the budget. They have been a large part of the reason for the recent slide in the markets. But there are reasons to believe that the reaction may have been knee-jerk, and selling has occurred without much of an analysis of the effects of the budget. Several companies, for example will benefit substantially. Stock analysts have pointed out that petroleum refining and marketing firms, petrochemical firms, fertilisers and chemical companies, cement, steel and non-ferrous metal companies are likely to do well. But that hasn't helped the scrips of these companies. Of course, one of the reasons for the rapid sell-off in the market is the fact that stock prices were ramped up prior to the budget. Even the FIIs fell for the big bang budget theory, supposed to be unveiled as the answer to the sanctions against the country. But surely hoping for that kind of budget was always a bit too optimistic, considering the rulingcoalition's ideological predilections, on the one hand, and the fact that they needed to appease their domestic constituency of local businessmen. Sooner or later, investors will discover that the high level of protection will yield huge benefits to a host of companies, which will be translated into growth in earnings.Economists may talk about the pernicious effects of protection, and the need to encourage competitive advantage. Investors, however, have to base their decision on company fundamentals, many of which will improve as a result of the budget. Even on the macro front, government investment spending will help companies, the excess liquidity will mean more money for the markets, while a little bit of inflation has always been good for corporates. The market will accordingly very soon sort out the winners and the losers, and, on balance, the market as a whole may hope to gain. Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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