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Constitution review or restructuring

May 11, 2002

Markets to some extent shed their lethargic garb, rising for most part of the week. Expectations of announcement on IPCL disinvestment, storm clouds blowing over the centre and a mid-week rally in U.S led to investors' taking to stocks. The IPCL announcement has been postponed to next week, but investor patience seems to be running out. Summer time seems to be the season for scams. The Harshad Mehta ('92) and Ketan Parikh ('01) scams were unearthed during this period. And now we have the Government securities scam, which feels like a little déjà vu for those been through the '92 scam. One of the leading Internet financial services company, it seems, has duped several state co-operative banks by channelising bank funds into equity markets, as against the Government securities promised. Having said that, it is a little perplexing as to why bank authorities did not ask for delivery of securities. It seems more that concerned parties colluded and knowingly tried to beat the system. Therefore, one may not look at it as a systemic fault. When ethos' system break down then obviously regulations will prove to be ineffectual. They are put in place for a more morally inclined society.

On similar lines, the Gujarat issue is likely to fade away from the political agenda at the centre. The ruling party was able to quash a censure motion by attaining majority votes in parliament. With an attack to possibly topple the Government proving futile, it is likely that the opposition may discard the 'Gujarat weapon'. Gujarat, once out of sight will be out of mind. This could give a free hand to the ruling party to restore stability in the state based on their ideologies. It is a little more than two months since violence first broke out and the state continues to burn. With what face does the Chief Minister claim that the situation is under control, which supposedly was achieved in seventy-two hours. As mentioned earlier, a new set of laws are required to govern a society, which seems to have lost all concept of right and wrong. Traditionally, Gujaratis' are not considered to be confrontationists. But a mob is a mob, and it does as much damage irrespective of the caste.

U.S Markets seemed to be in one cruel mood this week, buoying investor expectations of a possible end to the 2-year bear grip and then dashing those hopes. On the back of positive results and stable guidance from Cisco, the Dow and NASDAQ experienced an unchained rally. However, over the next two days markets took back most of the gains, ending another week in negative. Concerns on accounting practices, turnaround in corporate earnings and political uncertainty in the Mideast still persist, which could have kept investors' skittish. Dampening sentiment for technology, Big Blue announced another round of possible job cuts by 10,000. It seems investors' are selling into the rally, which does not portend well, as compared to buying into the bottoms.

We had mentioned last week that securing peace is a steep uphill task, as extremist are likely to dislodge any peace process. Tensions, once gain, rose in the Mideast with bombings in Israeli territory. Crude prices reacted adversely to these developments. With a slide in the last two trading sessions in U.S, domestic bourses shed their gains. Traders are not likely to have carried their positions through the weekend, which added to the profit booking. Earnings season has been uneventful and markets are looking for fresh triggers. The meteorological department is likely to announce the monsoon forecast on May 25. A positive announcement could lift basic materials and FMCG stocks. We continue to remain optimistic.

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