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Market Watch: Policy risk on the rise

business Updated: Apr 11, 2008 00:11 IST
Udayan Mukherjee

Our market has several reasons to worry today: inflation, earnings concerns, a global recession, interest rates etc. What we certainly do not need is another negative trigger. Unfortunately, all that one has heard from our politicians in the last fortnight raises the fear of policy errors compounding an already difficult situation for the stock market.

Our stock market does not need help from politicians, as is amply reflected in how well our bull market had progressed till January without any significant economic reform. But now, policy-makers are heaping straws on the proverbial camel's back. It started with the budget. The farm loan waiver, the absolutely needless tinkering with securities transaction tax, which has only increased volatility, and more recently the regressive moves to control steel prices. Not to mention the Damocles sword of monetary policy that hangs over the market’s head.

In any case, as you may have noticed, India is no longer the darling of global investors. Valuations and growth deceleration are making many investors shy away from our market and our politicians seem intent on supplying them with more reasons to shun us. Policy is a risk to this market. One wonders what the government could do to commodity producers like steel and cement next. If the Reserve Bank of India (RBI), at the government’s behest, raises rates, that could turn out to be a costly policy error that derates the equity market further. Investors could easily be left feeling that our political set-up makes progressive noises when the going is good but at the first sign of trouble the mask comes off as they resort to ill-conceived, dictatorial tactics to save their skin, politically. Hopefully, the RBI will act more wisely than our politicians, as it has in the past. Else, we have had it.