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| Edited By: G Chokkalingam |Source: DNA |Updated: Mar 19, 2018, 06:15 AM IST
In 1990s, a friend of mine used to drink alcohol almost every day. When I used to question him he would ask me to excuse as his wholesale edible oil business (which used to fluctuate widely like today's stock market) was very bad that day. Again next day also he would be drunk heavily, but this time he would explain that his business was so good and hence, he simply wanted to enjoy it! He never admitted the real cause of the problem which was being alcoholic!
The Sensex touched a life-time high of almost 30,000 on January 30. Since then the Sensex has fallen about 5% and many mid and small cap stocks, too, have tumbled as high as 10-20%. The market is "worried" about the Delhi election outcome. But the real concern is profit booking on account of liquidity constraints and some dent in the market optimism. Coal India and HDFC Bank have already mobilised over Rs 32,000 crore and now SBI, Axis Bank and Tata Motors have proposed to mop up another Rs 37,000 crore through new issue of shares from the capital market. Then both the individual investors and corporate have to mobilise resources to pay advance tax by March 15th.
The market optimism also got impacted as the corporate results announced for the December quarter thus far depict the worst scenario in the last 6 quarters and crude oil price, which crashed over 55% from the last year peak, has bounced back 23% within a month. Any further rise in oil price would spoil both the opportunity to save forex reserves (which hit a life-time high last week) and the benefit of cheap oil for many companies, which use oil derivatives as raw materials.
The Delhi election is for the state assembly, not for the Lok Sabha wherein the present regime is assured for the next 4 years (which is a long term period for the markets). Secondly, the Delhi assembly has got a mere 3 Rajya Sabha seats, for which the next election will be held only in 2018. So even if the ruling party loses 100% of Delhi assembly seats, it wouldn't make any imbalance in the both houses of Parliament.
The elections to be held in 2016 and 2018 for 75 and 68 Rajya Sabha seats respectively are more crucial for the markets. Many of these 143 seats are from the states where the assembly elections (most of which were swept by the ruling party) were held last year. In fact, 2016 and 2018 elections would witness contests also for the 10 "nominated" seats, which are normally given to the well-wishers of the ruling party. Based on the current tallies in the state assemblies, the ruling party is likely to get majority along with its allies in 2016 and on its own in the Rajya Sabha in 2018. The same would enable passing of pending economic reform bills starting from 2016.
The weakness in the equity market is expected to continue till the Budget is presented - however, the forthcoming budget is likely to reverse the trend by bringing in renewed optimism as the Finance Minister has already indicated that "it would be a reform-packed one".
