Sell in Feb and go away

The measures initiated earlier this week, like the reduction in customs duty on select items like stainless steel, or doing away totally with customs duty as in the case of cement, are part of the budgetary process of opening up our economy, dished under the garb of inflation fighting measures.

This was followed up by the reduction in the custom duty in the palm oil complex, where enough elbow room remains for another cut later on.

Trust the Chettiar to serve his budgetary provisions in small servings to allow the gastric juices (read markets) enough time to digest the not-so-tempting offerings, while retaining the mouth-watering fare for a late serving on D-day.

The budgetary exercise, which used to be shrouded in secrecy, is now a fairly well debated exercise and some of the sticky provisions are even test-marketed by selective leaks to the press to gauge the public perception or the market's view.

While the earlier stance of the FM was to spring a rabbit or two out his proverbial hat, with the moving of Major Jaswant Singh in to the North Block, such desire to surprise the markets took a back seat. And Chidambaram is a master chef despite the limitations of the cooperative kitchen he runs.

How succulent PC's sixth Budget will be would be a function of the extent he is able to weed out the thorns and sell it to the market as an oriental acupressure tool, prior to the Budget.

Had the custom duty reductions, which were introduced earlier this week, been a part of the annual Budget, the markets would have reacted with a 500-point slide, thrice the value with which it fell on Netaji's birthday.

My study of this millennium, never mind if we are merely in the eighth year, shows that it pays to exit the market after the Budget. Let the figures speak for themselves (see table).

The average returns during the January-February period in the preceding seven years is 4.46 per cent, with negative returns in two of the total seven. The returns in the March-April-May period have been a negative 9.17 per cent. Out of the last seven years, in five of them the returns have been negative.

In the two years that have seen the markets returning positive figures during the last seven years, the returns have been less than the January-February period.

March and May are typically weak months, with April providing some solace. A study of the past 17 years would show that in 12, March has given negative returns, whereas the score is nine out of 17 for May and seven for April.

Domestic liquidity usually dries up in March, making it the favourite striking point for bears, but the jury is still out as to why the markets plummet as the mercury soars. Whether it is the monsoon trepidation or punters taking a month off from their sweltering bunkers is still not known.

With our increased connection to the outside world, our domestic policies and Budget would increasingly become less relevant so long as they do not touch the FII investments, PNs and the capital gains tax.

So if you believe that history would repeat itself, you may do well to give a standing ovation to a beaming Chidambaram as he returns to his seat amidst thunderous applause from the treasury benches after he has rendered a couplet or two from Maha Kavi Subramanya Bharathi's rich legacy. And then quietly take a three-month holiday.