Date – Monday, 18th May, 2009
Venue - Dalal Street, Mumbai
Time - 9:50 PM

What the world witnessed at the Bombay Stock Exchange minutes after it opened on Monday wasn’t unexpected but the magnitude of the event was. The BSE SENSEX skyrocketed more than 2000 points minutes after the stock market opened to record two momentous events. First, this was the single biggest gain in a day in the history of BSE and second, it resulted in a never-before event of a Circuit Breaker kicking-in because of the upward movement. The Indian markets and its participants are more used to events like Manic Monday when the market crash wiped off 100000 crores (that is 1 lakh crores) of investor wealth.

The general public and market participants, in particular didn’t get tired beaming their close-up smiles for the TV cameras all day. The Brokers were seen taking pictures of the TV screens broadcasting the big news of the day just to show to their children and grandchildren that they lived to see this day. And guess what? Nobody actually gained anything.

Alrite agreed, the UPA is set to return to power and that too without the Left Support which will free the Govt. from the arm twisting techniques of the Left. A strong Government would be able to push through Economic and Social reforms much faster thus giving India a better chance on the world stage. But what has UPA Govt. done in the past 5 years to suggest that we are looking at brighter days ahead. Its governance record has in the past been, at best, scratchy and that can be attributed to the policies of the Left. But, not once in the last 5 years has Left did anything to mar any project related to Roads, Railways, Power, Airports, Urban Renewal etc.
A cursory glance at some of the stats available will put things into perspective:
Only 40% of roads targeted for completion are anywhere close to finalization.
Of the planned Power generation capacity addition only 32% achieved.
Only two green field airports, Bangalore and Hyderabad, have seen light of the day. Chennai and Kolkata airports are vintage WW-2 era styled and crying for attention.
Only 8000 KMs of new railway routes added since independence and majority of the last 62 years have been under Congress Rule.
Rampant corruption charges against Ministers.
Incoherent foreign policy in important events like Sri-Lankan Civil war and N.Korea, Iran Security Council Resolution.
Shabby record in internal security because of rising terrorism and all time low relations with Pakistan.

Moreover, bureaucracy and vested interests of political groups don’t let things move fast and nothing has changed in between 14th and 15th General Elections to suggest otherwise. Things will move like they have all these years and that is slow. Reforms might still take place but not at a speed at which you can justify the huge euphoria in the Dalal Street. More or less, things are the same and the only positive out of these elections is the fact that Govt. at the centre will be stable and decisive. Already the power tussle at the centre has shown that more the things change, the more they remain the same.

Now, getting back to the rocket Monday on BSE. The volumes were dismal at just Rs. 600 crore which means the Brokers didn’t earn much that day and investors were just left out of the rally because before they could buy stocks at a discount, the price had already spiraled. So investors also lost out. In a matter of minutes, stocks changed from PE multiple 10 to PE multiple 15.

Acronym Alert (Beep Beep)
(PE multiple = Market price of a stock / Earnings per share)

(And Earnings per share = Net Income / Number of outstanding shares)

The Earnings can not and didn’t change overnight rather it was the market price that had zoomed its way up for most large caps. But, there is hardly any justification for the rise barring the market sentiments.

Stock markets mostly play on investor sentiment and that is the only reason why markets went up in a jiffy. Millions of un-executed trade orders with buyers queuing up and no seller at all is a classic case of unmatched demand and supply. The demand exceeded the supply and thus prices went up. But, this euphoria won’t last long as markets today are global phenomena with the Wall Street playing the Big Boss. Retail investors are just another cog in the wheel but in the driver’s seat are the investment firms registered in tax heavens like Luxemburg and Mauritius. They push the market up and they pull it down on their whims and fantasies. Companies are the same, economy is the same, whatz more even the Government is the same. The inherent strength (or weakness) of a company’s balance sheet is what the markets look at and suddenly one fine day markets wont just find a new way to look at the bean counter’s work (the balance sheet).
What has changed is the sentiment and though it may sound illogical or weird to some, it is THE thing that matters in stock markets.

------------------------------------------------------------------------------------------------

Comments welcome!!