FM's Parting Gift- A Damp Squib!

By Ruma Dubey

The market was kept on tenterhooks almost the entire day. There was a sense of suspension; All market activities were focused only on one thing – what would the FM announce? And after waiting the whole day through, disappointment is all that came in after the huge built up.

First the announcement of FM over the weekend that he has some major announcement for the market, then the wait for the whole day through, the FM saying that the measures have been notified to the RBI, and the wait for the RFI announcement and towards the end of the trading day, after all this suspense the so called slew of measures just proved to be a damp squib.

Though the measures are essentially about arresting the rapid falling rupee, the very fact that something was being done, that in itself should have been a huge relief and a big sentiment booster for the markets.  But unfortunately, it was not. The market, as usual, was expecting too much – FDI in retail, hike in FCNR rates, boost to infrastructure, reduction in excise duties; in short the market was expecting sky and the earth. Thus, this essential “small” tweaking to arrest the falling rupee has left a very bad taste, souring the moods.

So what exactly is the announcement:-

1.     Hike in the limit of External Commercial Borrowing (ECB) upto $10 billion for Manufacturing and Infrastructure companies for repayment of outstanding rupee loans

2.     FII limit in G-SEC increased by US$5 billion to US$ 20 billion.

3.     Long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks can also invest in G-Secs for the entire limit of $20 billion.

It is not a question of whether the Govt will be able to correct all its apathy of the past few months in the next fortnight or a month. The point here is that maybe the Govt is finally waking upbut now it seems like the government is only half-awake and we need to wait longer. Now the market will build up on the Presidential elections getting concluded and Dr. Singh announcing sops to give a boost to the macro-economic scenario. But even after that wait if the market get only disappointment then one would have to wait for the government to go and hope for a more proactive one in place.

Attention is back on the Euro Zone, US economy, inflation, and a myriad of other economic issues. This small respite of optimism seems to have come to an end, for now.

But the market is always resilient. It cannot stay pessimistic for too long and will look for reasons to celebrate every adversity. When fuel prices get hiked, it hurts our pockets but market celebrates the news with a spike up in the OMC stock prices. FMCG companies announce a price hike in soaps and shampoos, it hurts us but the market is happy. Tea crops are damaged by pests; tea stocks shoot up.

A punter on Dalal Street explained that as bad news rises, traders slowly start climbing the wall of fear. When there is only negative news, traders tend to take more risks, convince themselves that things are not so bad and that provides an opportunity for the optimists.

Infact wealth creators say that when times are bad, it is probably the best opportunity for long term investors to create wealth.  Yes, it is best to look ahead and wonder how things will be a year from now – interest rates would be much lower start softening, there could be a grip on inflation, project execution would have started picking up, growth rates would start stabilizing, Europe and USA could also be looking ahead with optimism. As one fund manager says, “It’s best to be greedy where there is fear all around”.

That may not be the hallmark of the best human trait but surely makes sense for an equity investor. So what will you be – a human who gets cowed by circumstances or an investor who sees an opportunity in every adversity? It’s best to rejoice the fact that you are alive now and work towards providing for when you may not.