Nov 16, 2002|
Cannot runaway from politics
The week saw the BSE Sensex breaching 3,000 levels to close at a month's high. Technology counters largely guided benchmark indices. With the outsourcing story materialising at the ground level, tech is fighting back. Wipro has witnessed considerable positive news flow over the past fortnight leading to Nifty outshining the Sensex.
Having said that, ever since the cabinet committee on disinvestment (CCD) meeting on September 7, 2002, politics has taken over from economics. Stalling of the privatisation programme has been followed by deferral of the FDI policy and delay in implementation of second-generation reform legislation. In fact, as per reports, N.K. Singh, chairman of the committee on FDI, has stated that a key risk facing the country is backlog of new legislation. Making matters difficult has been lack of consensus within the majority party and with partners of the coalition government. We continue to believe the stalemate is due to deferring ideologies between the old boys group -- more their concern over vested interest -- and new political entrants espousing modern thinking.
Having said that, ironically, lack of ideological leanings among political parties seems to be offering a ray of hope. With the winter session of parliament to commence next week, the incumbents are worried opposition will question the Government's stand on privatisation and other less popular reform measures. Consequently, reports suggest, the coalition is attempting to thrash out a compromise solution. The party that introduced reforms and privatisation is supporting sale of only bleeding public sector units (PSUs). Playing devil's advocate, to support privatisation will the party first bleed all the PSUs? As politics has led to investor diffidence, it seems that politics might only be able to rebuild market confidence. Will Santa bring in the goodies this winter?
Global markets continue to be jumpy on the possibility of U.S military action against Iraq. As mentioned last week, we reckon, war is the last choice even for U.S. However, all the war talk could be strategies for expediting a consensus among veto-bearing U.N members on U.S framed weapons inspection resolution. Also, the noise could be intimidating strategies for bringing a more compromising Iraq on the negotiating table. At the same time, offering flexibility to adopt the last recourse.
Post mid-term elections, the bull run on U.S markets is taking a breather. The rally could have been to pump in a feel good factor and project a recovering economy, which was the biggest threat to the Republicans. The attention on foreign policy and security matters by Republicans seem to corroborate the view. The domestic Government adopted similar measures, as doubts arose on their ability to control internal law and order. That said, the rally was also supported by corporates meeting earnings expectations. However, one has to remember the meltdown in September and early October '02 was due to these corporates revising their earnings guidance downwards. The interest rate cut by U.S Fed to forty year lows, despite statements otherwise by the chairman, also suggests a weak economy requiring another dose of stimulant. As a result, we maintain, domestic bourses are unlikely to get an external stimulus. (Read more: Global equity: Needs a new leader?)
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