Developments in Bihar and Gujarat, the likely turn of events at Parliament, Allan Greenspan's warning of interest hikes, tremors at Nasdaq, pressure on money supply due to tax payments and the impact of upfront margins have all combined to bring fresh pressure.

On the political front, the budget seems to be heading towards speed breakers. The NDA does not look as strong as before. Assurance on political stability is of paramount importance to stock market sentiments. Tremors are now felt here and this could well be the reason why market players are unwinding positions. Till now, I had been impressed about BJP's political maturing over the last three years. They demonstrated this during the last general elections, forming NDA and a unified agenda. But of late, the party is proving to be rather unwieldy for its leadership.

The discomfiture in Bihar has some of its reasons in the BJP not being able to orchestrate the party nationwide. The RSS episode in Gujarat and the UP chief minister's statement that the Ram Mandir will be built could have well alienated the Muslim votes in Bihar to vote against the perceived saffron threat. On the RSS issue, the NDA allies drove home the truth to BJP that secularism is an issue that you can ignore only at your own peril. You can drive Hindutva in one form or another only up to a point.

I hope the BJP will yet learn from this experience. In such circumstances, the worry for the market is the likely turn of events in Bihar. If Nitish Kumar fails to get his numbers, the political weather is likely to heat up in Parliament. And that would not be very good for passing of the budget.

While foreign fund managers have found some merit in the budget, the Parliament may not view it in the same wave length. Some of the NDA allies as well as some in the opposition may indeed find the budget to be a sellout to MNCs and in the process goes to hurt the poor and underprivileged. They may well fight tooth and nail against the hike in issue price of grains as well as possible hikes in kerosene prices. Cut back in fertiliser subsidy too will be an important issue.

Nothing much is being done to help the poor to earn a better living. On the other hand, it is felt that much is being done to help the MNCs. Customs duty has been lowered on items like cellular phones, whereas excise duty on biscuits have been jacked up. It all boils down to the argument that Sinha is keen to cut down on subsidies, but the government has not bothered to tackle related issues. The bank NPA issue is seen as government's reluctance to touch the upper sections of society.

The same thing can be said of huge arrears of income tax, accumulating to reportedly around Rs 40,000 crore, or black money generation. On top of this, the government has done nothing adequate enough to help the small scale industry, which generates employment. On the other hand, government moves will end up killing the small scale sector. I would not be surprised if the budget faces a frontal attack. And Sinha may have no options but to roll back, once again.

Let me now take the tremors at Nasdaq. With interest rates likely to go up, there could well be a shift towards more bonds. Also, a rise in interest costs could slow down software spending. And that, in turn, could affect software stocks. The non-infotech stocks have been beaten down badly and it would not be surprising if there is a gradual shift towards this.

If the tend is affected at Nasdaq, it will impact even Indian software stocks, as this sector takes its valuation from the US. That could make players book profit on software and shift to other stocks here as well. We have already seen the beginning of this move this week.

If the market had revved up in the past few months, it is more because of higher re-rating, which came much ahead of improvements in performance. Simply put, it was an appreciation in price-earning multiples.

This ratio has once again come down. Can this go up? It can only on two counts. First, the rating of the economy and second, the liquidity.The present government has shirked from its responsibility for biting the bullet. It has not been able to come up with a prescription for the long- term growth of the economy. On the other hand, the fact that it lacks the courage and leadership to tackle the underlying issues is a negative factor for sustained growth of GDP. The government is fudging everywhere.

It will not isolate funds for road development into a fire-walled chest. Nor would it do to disinvestment of PSU towards retiring public debt. Nor would it appoint an Expenditure Commission. This is a dangerous chalta hai attitude. More importantly, it reflects very poorly on the quality of political leadership.

It hopes to ride on the wave of services sector a la infotech. Instead of addressing the concerns of the nation, it has addressed itself only to concern of its own revenue. It has ensured that it will get its customs duty, excise duty etc., But what is there in the budget in terms of a game plan for the nation? Virtually nothing. Tit bits do not add up to a vision.With such a bleak outlook, I wonder if the price earning multiple will appreciate. Some may point out that industrial growth is continuing. I agree but that is not long-term.

So, will the liquidity drive up stock prices? Yes it could, and you can rely on Sebi yet again to manipulate markets with margin rules. But all players including FIIs will bother to enter at only really low valuations and book profits much sooner. I think we are headed back to the scenario that existed two years back, ridiculously low price-earning multiples. The FII fund flow for the next year would end up slowing down for the next year.

But you cannot help these. Not when you have a government which lacks a vision and is also short sighted.