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Stock Markets: Don't get spooked! - Views on News from Equitymaster
 
 
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  • Apr 28, 2004

    Stock Markets: Don't get spooked!

    Yesterday's trading, for a brief period, reminded one of the major single-day falls that were seen on the indices in past times. One of them came on the day following the terror attacks on the US in September 2001 and then once again, when Infosys declared disappointing results in April 2003. On these occasions, the benchmark Sensex had lost 3.7% and 3.4% respectively! Yesterday, the Sensex again lost 3.6%, this time, on the back of the uncertainties that have cropped up.

    According to various media reports, on the basis of the exit poll results, there is a possibility of a hung parliament and this led to investor panic on the bourses. Despite the continuous flow of good results by India Inc., market focus seems to have entirely shifted towards elections and the likely government at the Centre. This is primarily because of the concerns pertaining to any new government, which could have an effect on the pace of current reforms in the country. But then, does a change in government at the Centre really matter?

    If one considers what the current ruling party has been talking about is further broadening and deepening of economic reforms for sustained double-digit GDP growth rate. Eradication of poverty and unemployment, improvement in education, healthcare and infrastructure along with making India a major exporting nation and a tourist destination are among the points envisaged in the party's 'Vision Document'.

    When one compares these broader points to those that are mentioned in the opposition party's manifesto, one realises the similarity between the two. The opposition has also talked about the broadening and deepening of economic reforms! It has stated its prime objective as being able to attain and sustain year after year an 8%-10% rate of economic growth and to spread this growth over all sectors, particularly agriculture and industry. An annual growth rate of less than 4%-4.5% in agriculture and 10% in industry is simply unacceptable, the manifesto states.

    Apart from this and other issues akin to the ruling party's agenda, the opposition has mentioned the importance of public-private partnership in the form of public expenditure and private management. Further, issues like creation of power generation capacities, boosting private investment and foreign direct investment, enhancing industry's global presence, strengthening infrastructure, privatization (though selective), tackling the country's revenue & fiscal deficit and tax reforms are some of the issues common to both the parties' agenda.

    How much of this will be achieved over the next 5 years, by the party coming to power, will be visible only as time passes (the ruling government has already displayed some commitment on this front). However, one thing distinctly evident from the above is the fact that reforms are here to stay and this process is set to continue to roll, irrespective of the party coming into power. The only cause of worry, and that too in the near-term could be that if a 'new' government comes to power, the pace of the reforms could see a slowdown in the immediate period of the 5-year term.

    Further, a hung parliament is not a threat in the real sense in the medium to long-term, as it merely indicates 'no party with a clear majority'. While there is no denial of the fact that a party with a clear majority definitely brings in a greater degree of stability, the ruling government has shown during the last 5 years that a coalition government can be run, and run successfully.

    Considering all of the above factors, investors must note that stock market behaviour, like the one witnessed yesterday, is merely the act of opportunists at work. These tend to take advantage of investor sentiments, which are, unfortunately, influenced more by rumours than fundamentals, to make a quick buck. In fact, investors now need to consider the various positives that have braced India, which have elevated the country into the global league of nations, and look at the long-term prospects of the country.

     

     

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