Dalal Street Blues

The BSE Sensex on Tuesday ended at 2,991 points, piercing the psychological 3,000 mark. A spectacular stock market rally after 9/11 has come to a grinding halt as worries over the failure of the monsoon cloud Dalal Street. But monsoon blues alone cannot be blamed for this: the decline is global. All the leading stock indices in the world are down to four- to five- year lows and investors are wondering how long the the grimmest bear run of the decade will continue.

In India, the market is at its nine-month low thanks to the composition of indices that overwhelmingly favour public sector stocks that figure on the divestment list. If the PSU stocks were excluded from the indices, the market would show a much sharper drop that would match the dip in world indices.

Statistically speaking, the market capitalisation of actively traded stocks on the BSE is significantly up by Rs 1,50,000 crore from its (then) nine-month low Sensex level of 2,600 points on September 21, 2001. The rise in market cap brings in the feel-good factor. PSU stocks account for about 47 per cent of the gain in market cap.

Stock market investors had a tough time after 9/11. Share prices declined sharply and rapidly within a fortnight of attacks, sinking stock prices to their five- or ten-year lows. However, the fear receded slowly and the stocks peaked in the last week of February 2002. At that time, it was expected that the market would climb further.

That never happened. The decline in stock prices in India started immediately after the Union budget for 2002-03. The first blow came from the budget proposal of taxing dividends in the hands of investors. And then came the border skirmishes with Pakistan. Within three months after the budget, the BSE Sensex lost 600 points from a high of 3712.74 on February 26, 2002 to 3114.05 on May 23, 2003. Fears over the monsoon dealt the final blow.

Worldwide, share prices have dropped as worsening earnings forecasts and revelations of US companies