AK-NOMICS | Of markets and mid-term elections

"Just when you thought the waters were safe again..." These were the promo lines for the sequel to yesteryear’s Hollywood blockbuster

Jaws

.

After seeming down and out for the count last weekend, markets worldwide got an unexpected respite when the US Fed, in a move dictated more at containing negative market sentiment, announced a rate cut.

Expectedly, markets across the globe opened gap-up on Monday and though the Indian indices gained in numerical terms, the undercurrent of caution remained palpably visible. Why ?

Well, two issues loom large over the Indian bourses. One, the inevitable but yet unavoidable shocks that further sub-prime shocks in the US market can deliver and second, the implications of the bind that the Left Front parties in India have got themselves into.

Most might well say, so what's new, regarding the latter, but this time around, they have the Government itself in a bind.

For a group of parties with a mere 60 seats, the Left Front has enjoyed unparalleled power for the last 3 years without any accountability, as they have chosen ‘outside rule’ to participation in this Government.

Having got used to getting the Government to heel on most issues, even as they raved and ranted, often for no reason, this time around, they have been stunned by the Prime Minister’s dare to them, to actually bite, instead of barking.

Now, having worked themselves into a corner, where their ability to bite rather than merely bark has been challenged, they seem at pains to extricate themselves with some face saving exercise, even while hardening their public posturing.

The Congress Party has ruled India for close to 90 per cent of the time that India has been independent, and they do know a trick or two about electoral ground realities. Even as they make conciliatory noises and offer to search for a face saving exit for their Left allies, they seem very clear that there is no political dividend to be reaped by rolling back the 123 agreement with the US.

Now, will all hell break loose in our markets if a mid-term poll were to take place. For one, historic evidence clearly suggests that while stock markets have the wherewithal to absorb shocks and unfavourable developments, it is uncertainty that hurts markets far more.

Another positive for the markets, which has been at the receiving end of the Left Front’s dog in the manger attitude towards economic reforms is that ground realities in the red bastions of Kerala and West Bengal suggest that it would struggle to achieve even 50 per cent of the seats it did last time.

So, who should really be scared of a mid-term poll. My hunch is that marketmen have their eyes focused on the US markets and how the sub-prime shocks saga unfolds rather than the political circus on in India at the moment.

Ashok Kumar heads LOTUS KNOWLWEALTH and can be contacted at

ceolotus@hotmail.com

First Published: Aug 22, 2007 02:01 IST