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Economics Vs Politics

Apr 13, 2002

Bourses ended trading not much changed from the previous week, which has been the trend over the past three weeks. Having factored in a recovery in February, supported by a rise in the U.S bourses, markets are looking for more economic news to support future direction. However, slide in the U.S markets coupled with domestic and international concerns has capped sentiment. The U.S economy has rebounded from the slump with GDP numbers for the past two quarters registering positive growth. Many analysts have revised their GDP growth forecasts for 2002 to 5% and academics debate whether U.S ever had a recession. While the economy charts out a recovery, stock performance may not reflect a similar bounce back, as current valuations seem adjusted for the earnings turnaround. Increased liquidity, with lower interest rates, has found its way into the market, keeping stock prices buoyant, as risk taking appetite increases.

Consequently, Indian bourses may have to perform independently of the U.S markets. Concerns of higher energy prices have reduced with Israel scaling down its offensive against Palestine. Also, reports of comfortable crude inventory levels with the U.S, cooled speculation in oil markets. This should help lift domestic sentiment.

As per reports, the Gujarat assembly could be dissolved and fresh elections are to be held. The latest moves smell of political machinations. Will a fresh mandate, wash the hands clean of the present state Government of administrative failure -- putting it mildly -- in the recent Gujarat carnage? The majority community supports the BJP. Will they dislodge the hand that rocks the cradle? Will a landslide victory result in BJP playing the 'Hindutva' card nationally? Or worse, create an environment to play the card nationally? The BJP party seems to have taken full leverage of the fact that its coalition partners and opposition are not confident to go in for fresh general elections. As per reports, since separation of economics and politics seems difficult, the BJP think tank is now contemplating at least slowing down economic reforms when there are more important issues to be separated from politics. Every time hope builds that a Government seems to be guiding the country on the right path, they successfully manage to disappoint.

Barring any developments in Gujarat and its ramifications on the country, many of the concerns that led to weakness over the past month seem to have ebbed. In the coming week, markets move deeper into the earnings season. This is likely to trigger greater interest in the markets. That said, while a rally could lift all boats, many of the index scrip seem valued. Consequently, stock picking is likely to be more broad-based, as has been the case in the past three months. The broader indices have outperformed the BSE Sensex. The rise in the BSE 200, 100 and Sensex has been 21%, 13%, 8% respectively year-to-date.

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