Dalal Street running of bulls; move over Pamplona!
Every year at Pamplona in Spain, there is a festival called Running of the bulls which begins on July 7, for a week. Macho men, showing their bravery, run in front of the bulls on narrow streets, sometimes getting mauled in the process. This year Dalal Street seems to have emulated this festival, with the BSE Sensex adding 308 points to end the week at a new high of 15,272, while the Nifty added 119 to end at 4,504. Reliance Industries, with 60 points, and Tata Steel with 44, were the main contributors to the 308-point rally in the Sensex.
The rally was almost entirely driven by FIIs. For the first three days for which data is available, the FIIs were net buyers of stock (Rs 889 cr, 702 cr and 363 cr) while domestic mutual funds were net sellers (Rs 190 cr, 167 cr and 332 cr). In fact, the bull market in the first fortnight of July is entirely driven by the foreign bull with FII inflow totalling $3.5 billion. The rally is reminiscent of the Clint Eastwood, Lee Van Cleef movie ‘For a Few Dollars More’.
The world, in fact, is awash with liquidity, which is driving up asset prices. Mergers & Acquisitions (M&A) are getting larger (Rio Tonto announced one with Alcan last week, for $38 billion, similar to Mittal Arcelor merger). Deepak Parekh laments the easy flow of money into SPAC (special purpose acquisition companies), which has no history or plans to utilise the money raised.
The India story remains good, which is what attracts the foreign investment. Industrial production in May grew at a healthy 11.1 per cent, albeit lower than the 12.4 per cent in April. Customs and excise revenue is up 12.7 per cent in Q1 and advance tax collections are significantly up. Inflation is under control although figures are suspected to be fudged.
Corporate results for the first quarter ended Jun are good. Infosys got hit by the strong rupee as its income is dollar denominated, yet managed to post a 27.7 per cent growth over Q1 of last year. The market got disappointed because it lowered its guidance on account of the strong rupee, causing the Sensex to fall 99 points on Wednesday, which was more than compensated over the next two because of strong foreign inflows. UTI Bank (which is raising $1 billion overseas) also put in a good show, as did HDFC Bank and Chennai Petroleum.
Even as private sector companies are competing and acquiring, public sector ones are being destroyed through senseless interference. ITI, once a jewel in the PSU crown, is now a BIFR case and watchmaker HMT has long succumbed to private sector Titan. The telecom minister now seeks to hamper BSNL, by asking it to renegotiate a 45.5 million line tender which has gone through a proper evaluation process. Should it be compelled to do so, BSNL’s ability to grow its customer base would be severely hampered.
Tata Motors’ new Rs 2,500 crore plant in Uttarakhand is lying unutilised because of a stay order by the Supreme Court, on environmental grounds. Surely the company would not have made such a huge commitment without the requisite permissions; legal delays, perhaps on flimsy grounds, ought to be avoided. Our politicians, bureaucracy and judiciary ought to get their acts together.
The market is now moving on the first of the Clint Eastwood ‘Dollar’ triology. The third of the triology with the same star cast was ‘The Good, The Bad and the Ugly’. The long-term story is good, but short term caution is advocated. At the analyst meet of real estate developer Omaxe Ltd, which is coming out with an IPO, it was pointed out that the potential for this sector was huge. Omaxe has developed 5 million sq feet since 2001. Now, the office space requirement for the estimated 1.5 million jobs that just the IT/ITES/BPO industry would generate, at 75 sq feet per person, would be 100 million sq feet. Housing requirement would be additional.
So the economic ball has just started to roll for India. If only politicians, beaureacracy and judiciary would get their acts together, the bull running festival would be shifted to India for a long time.