The seed of the January-February rally that saw the Nifty surge 1,102 points from the low of 4,531 on December 20, 2011 to 5,629 on February 22, 2012, was sown by the assumption that the Congress would do better in UP and the Samajwadi Party (SP) would need to cling to the apron strings of the Congress to form a government in UP. In return, Congress would have used SP support to carry out policy reforms. But nothing of that sort happened and the rally, like a sagging balloon, is now unwinding.
Foreign institutional investors (FIIs) are fair-weather friends. They have no special affinity for India but come to India because it offers growth, a good local consumption and favourable demographics. But they would need a stable currency to let them keep their economy-related gains. What are we doing to stabilise the currency?
After the dismal Index of Industrial Production (IIP) numbers and disappointing inflation data, we had a bevy of appearances on television, right from ministers to North Block mandarins, crying over the bad set of numbers. Gentlemen, even a Class-VIII student would know that these numbers were pathetic. What the nation wants to know is what are you doing about it?
Everyone seems to be waiting for the year 2014. No sir, we are not hosting the FIFA World Cup. But the general elections due in 2014 are likely to produce an even more fractured mandate. The real difference between the current situation and 1991 is the lion-hearted late P V Narasimha Rao, who asked Manmohan Singh to go out and do whatever it takes to set the economy right, while he took care of the compulsions of a minority government.
But the government can tackle the depreciating rupee without stepping on the toes of coalition partners. The imports of precious metals from April to December 2011 rose a staggering 50 per cent. You take this import out and you have a rocking currency.
Commodity exchanges are also adding to the inflation in the agri economy. The average carry cost of two per cent per month for agri commodities straightaway translates into higher food inflation. Don’t be fooled, by closing these commodity exchanges you will not hurt any one because in India neither the producer nor the buyer is on the exchange. China is not a fool to not to have these exchanges.
You take care of the currency and it will take care of the markets.
The author is head of business - private broking & wealth management, HDFC Securities