The stock market is also called the barometer of the economy. The index level, which is the collective intelligence of all the market players, is often a judgement on the budget.

Markets react in a matter of few minutes and days. Three days after the budget the market continues to be in a bearish mood. Surely, the market reaction would soon get tempered when a more thorough analysis of the impact of the budget proposals is made.

But at the same time, one cannot fail to notice the action of the foreign institutional investors (FIIs) as soon as the budget proposals were known. FIIs, as indeed even UTI, have an ongoing research on the economy and the prospects for corporates.

This enables them to react in the shortest possible time. And it is important to be the first to act as that will decide your profits orcontainment of losses. It is in this context that one should take careful note of the FII selling in SBI in huge quantities. The sharp downward movement of the stock to Rs 212 has shocked almost everyone.

Have the FIIs over-reacted. There is no way to tell. But one does know that they are in the habit of trading in huge quantities, irrespective of the price once a decision is taken.

Maybe it is the huge disposal which pushed the price too far down. But that also highlights the fact that without any monied player taking interest in a stock, there is no way it can look up, whatever may be its intrinsic worth.

The software stocks are another case in illustration. Their values have multiplied 7-10 times in recent weeks. So are scrips like BPL and Videocon.

It is also time to muse on UTI's power to move markets. UTI reportedly stepped into the market on Wednesday, possibly to stem the slide. And one cannot dismiss the possibility of the finance ministry influencing UTI's action, all in the spirit ofdefending the nation. But once UTI's fund was exhausted, the slide resumed.

But the investor has important questions before him. FIIs have continued to be sellers. The current low prices have not yet attracted any buying. Possibly, they will not because they have reportedly sold pivotals like HLL, ITC and SBI. And bank shares are considered to be a substitute for the economy.

If that is the accepted norm, the investor should get alarmed. Let us take up the other negatives. The rupee is expected to slide further. If it should slide another eight per cent in the next six months, the Sensex should be discounted by that much, which amounts to a slide of another 280 points.

That takes the Sensex to the 3,300 level. But what about another discounting for the likely depression in corporate profit growth. Sinha's budget is a mixed bag. There are both short-term and long-term measures. The long-term measures aim at promoting growth. But this will take time to materialise. The budget plans for infrastructuralgrowth look good on paper. But translating them into reality is not going to be a cake walk. We have been talking for three years about port, road and power development. Yet everyone knows that we have not achieved much. The obstacles are not easy to surmount. There are also long-term measures aimed at improving tax collections.

Sinha is working towards providing a firmer ground for economic growth. But it is his short-term measures that are likely to hurt the investor. While the domestic industry has been given protection, several other measures in the budget would end up increasing the cost of goods manufactured and marketed. This is likely to exert pressure on corporate bottom lines.Capital spending will be put on the backburner. So you would get into a vicious cycle. While FDI investments would continue to come in, FII investments may easily get toned down on a re-rating of profit growth for corporates.

If that happens, it will spell gloom for stock markets. The above hypothesis is not unfounded.Look at what happened to Tisco, SAIL, Telco and ACC last year. They are the industry leaders. Their performance has been affected by the lack of growth in the economy.

But for the rise in customs duty, Chidambaram's budget had relied on savings from taxes to feed economic growth. That did not happen. People with perceptions of threat in financial security resorted to saving rather than spending. Businessmen and bankers found it unviable to make more investments. Sinha's budget has not and cannot address these issues in the short run. The culture of subsidies, political barriers to dismantling of sick PSUs quickly and growing government expenditure has thrown the nation into a vicious cycle.

The government could have well gone to raise sovereign loans abroad, instead of taxing more to fuel growth. The government has made it difficult for FIIs to invest without offering exchange rate protection. The government is unwilling, perhaps rightly so, to take risks with the rupee exchange rate volatility. Thestructural weakness is self-evident. With no cure in sight, the government is just dragging itself through.

Under the circumstances, investing today does not have much attraction. The only gain that can come will be because of a recovery from any over-depression in prices. And discounting for both the likely rupee slide as well as the anticipated reduction in corporate profits, the Sensex might well slide to 3,200 levels.

But in the short run, there could be a recovery. Remember that the markets can fall again. You don't have much to choose from, but make gains in the short run. That does not mean the market will not slip further right now. It still can. In fact, subsequent to the writing of this column, the market fell by a hefty 129 points on Friday. Market players alone can answer that in terms of what they are willing to put at stake. You could look forward to the buyback arrangement. But do you seriously think that can cure all the ills?