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Saffron props fail to revive the market

It all started minutes after the Bharatiya Janata Party-led coalition government delivered its Budget for fiscal 1998-99. Between then and now, the Bombay Stock Exchange's Sensitive Index has witnessed a drop of 532.59 points.

The bulls, who were optimistic about a swadeshi government at the Centre, lost their hopes of major market-related reforms being announced with the Budget and ran for cover.

So did foreign institutional investors who saw nothing in the Budget for them.

Since June 1, the FIIs have pulled out $ 205 million. FIIs say they were facing redemption pressure. "With the situation going against India, we were being pressurised to take back our funds and pay our investors abroad. After all, we are answerable to them. Aren't we?" says Sameer Arora of Alliance Capital.

Following the FIIs' exodus, other smaller operators followed suit. With Indian institutions like Unit Trust of India also not able to balance the market with their buying, the fall was inevitable.

Most marketmen seem to have given up hopes of seeing a booming stockmarket for a long time. Analysts like Mehmood Khan, assistant manager at Times Guaranty, believe there is good reason why the Sensex could touch the 2500 level.

"The market has already reached the 2950 level thrice," he says, "Once it cracks that mark, there will be sheer panic which will see the market testing the previous bottom of 2713 -- it had touched that level on December 4, 1996."

Market regulators are not surprised at the general depression in the market.

Securities and Exchange Board of India Chairman D R Mehta says, "These are testing times as it is the first time the market has had to face the onslaught on all sides."

Sure enough, there could not be a worse time for the bourses to go downhill. With the South-East Asian economies going bust, the debate about India being the best investment option in the region had already begun.

So when India conducted five nuclear tests at Pokhran on May 11, it was clear that India had walked into the danger zone with its eyes wide open.

Economic sanctions have been slapped. Downgrades followed -- the decision of Standard & Poor and the Moody's Investor Service, two of the most influential rating agencies in the financial world, have had a crippling effect on the economy.

The rupee kept breaking all its previous records and hovers around the 42.50/43 mark against the US dollar.

The cascading effect has taken its toll on the already sluggish economy with inflation rising beyond 6 per cent .

The markets had these and their own share of problems -- like, the possible defaults in payments by a group of brokers led by Big Bull Harshad Mehta -- to tackle.

Ironically, it was only when the BSE's payment crisis became larger than life and resulted in a major 190 points drop in the Sensex on June 15 that the authorities rose from their slumber. SEBI banned short sales until further orders.

After a few hitches, the heavy selling seemed to have sobered down enough to get a confident SEBI to decide doing away with the ban from July 6 onwards.

FIIs too were offered a bait to stay back. They were allowed to tender securities directly in response to an open offer made by an acquirer instead of going through a broker. They were given permission to trade in derivatives without needing to give or take deliveries. Besides, Finance Minister Yashwant Sinha, who until then had been brushing aside the market volatility, changed track and showed his concern for the markets.

Buy back and divestment of public sector units are under the arclights once again. The UTI, known for bailing out the government in the markets, too has made promising statements about getting in about Rs 600 billion into the equity market.

So does not all this sabre rattling mean there is a ray of light at the end of the tunnel?

In fact, the BSE moved up by 121 points during Monday's trading. However, it lost 39 points on Tuesday.

Is it not an indicator of better times?

Unfortunately, there are not many takers for the optimism. BSE member Haresh Shah believes, "With the SEBI ban being on till next Monday, our hands are tied. We cannot sell. Every major rise is artificial right now. This forced buying is making the market hollow."

What most brokers believe is that once the ban on short selling is removed, there could be a spurt in selling which could push the Sensex down.

M G Damani, former BSE president, says, "No one can make any guesses about the level to which the Sensex may fall. Anything is possible since the market sentiment is at its lowest ebb right now. And short-term measures to boost it will bring only temporary relief."

Sameer Arora sums up the situation, "We need to get the people into the market. This means nothing can bail the market out. Not until the macro economic situation changes."