Will the Left spoil the party on Dalal Street?
The thing about money is that it is fungible. Ben Bernanke wanted to pump in money to avert a cre With the US real estate market heading down, and given the ongoing boom in India, a lot of foreign funds entered Indian stock marketsdit crisis, and to make it available for consumption. He, or any central banker, cannot prevent it flowing into assets., propelling the sensex to a high of 17979 last week, a whisker shy of the 18K mark. Consider that in the first three working days of last week for which data is available (October 2 was a holiday for Gandhi Jayanti), foreign investors’ net purchases were Rs 2195, 3881 and 575 crore respectively.
Interestingly, domestic mutual funds net purchases were minus Rs 207, 102 and 532 crore on these three days. The week ended with the sensex up 482 points, at 17773 and the Nifty up 164, at 5185. Of the 482 point rise in the sensex, Reliance (with 197) and L&T (with 107) were major contributors and ITC and ICICI Bank the major losers (-43 each).
The booming market is spurring a spate of IPOs and successful listings. Power Grid had probably one of the best listings when its stock, offered at Rs 52, ended on opening day at Rs 100.65, a gain of 93% for its investors on day 1. Companies planning IPOs are Reliance Power, which plans to raise $ 2.5 b through a stake sale of 10 – 15%, SBI, which is looking to sell a 3% stake to raise a similar amount and Rural Electrification Corporation, which has got FIPB approval for an IPO.
There is also a huge level of confidence in the future as indicated by the size of projects being undertaken. DLF has been awarded a huge project of Rs 60,000 crore! to develop a knowledge city between Bangalore and Mysore. L&T is to foray into building warships in Tamil Nadu, with an investment outlay reportedly of Rs 50,000 crore! There is thus both significantly increased appetite for large and ambitious projects and funding available for them. As more companies go in for large IPOs they, too, will have the wherewithal, as DLF has, to contemplate large projects.
Funding also comes from past errors, as Maharashtra Government is finding out. It is likely to be rewarded for its folly in creating Asia’s largest slum at Dharavi, and can get Rs 10,000 crore by giving additional FSI to builders to allow them to house the slum dwellers and yet make it commercially viable. The Railways will put out some 750 acres in Mumbai, at Bandra, CST and Mumbai Central, which will not only give it adrenalin funding but also boost real estate development in a city where prices are going through the roof. Most often the neglect of duty by politicians and bureaucracy is resolved by the courts, which seem to be working. The Mumbai High Court has ordered the Borivili National Park to be cleared of slums.
Some industries may face constraints to growth. The telecom industry is facing a spectrum shortage; besides the industry has been thrown open to new entrants. Some 400 applications have been received! This is strange, for each telecom circle has enough incumbents so allowing new ones in until spectrum is available and tradeable, makes little sense. Were DOT really to be interested in consumers, it would do better to quickly implement mobile number portability. Now, once a customer is acquired, lack of ownership of his number makes it difficult for him to leave the provider, never mind quality of service.
The trade deficit between April and August widened from Rs 91,000 crore last year to Rs 133,000 crore this year, but the foreign exchange position is comfortable. What is of concern to investors is the recalcitrant behaviour of the Left parties, which continue to threaten withdrawal of support to the Government if it proceeds to operationalise the nuclear agreement. The Government has no time left for such squabbles. The next meeting with the Left parties is on October 9. If they were then to walk out, markets could get affected. Getting lighter would not be a bad idea from both dietary and investment angles.