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Trading tricks on the rise

In yet another eyewash, from 2004 WTO will take complaints against agricultural subsidy policies, says Dr Bhaskar Dasgupta.

india Updated: Dec 01, 2003 20:43 IST

The India Babble

Foreigners were responsible for welcoming Monday in with a bang, with the Sensex gaining more than 156 points and breaking through the 5000 barrier. The Sensex closed at 5063, a high not reached in 42 months! There were good
news galore, first from the strong US GDP growth figures released on last Friday, good Indian domestic economic numbers (and interest rates being held flat) and finally very high amounts of foreign institutional inflows in October. Maruti, Hyundai, Dr. Reddy and other reported better than expected quarterly numbers. Tuesday saw the Sensex move even higher by 35 points,
after more FII interest, and closed at 5098. Following this though, the markets slid for the next three days in a row, with the week ending at 4971, giving up all the gains it had made over the first two days of the week.

The recent civil aviation policy announced is a prime example of a hair-brained scheme, which doesn't make any sense. Now the Ministry of Civil Aviation has announced that foreign airlines can pick up 26 per cent of equity in domestic airlines. Total foreign investment can be up to 49 per centoverall, but the foreign airlines are limited to 26 per cent. This follows on from the 1998 policy, banning all foreign investment in domestic airlines. Ok, let me ask this simple question -Why would a foreign airline ever want to do this, specially, given the past incomprehensible history of civil aviation policy flip flops? I find it thoroughly irritating that the government cannot make up its mind and keeps on playing these silly games. Airlines are not something which is part of an essential national infrastructure for most of the population, and why would the Indian taxpayers support a decrepit airline infrastructure when there is perfectly good private money available, I don't understand. If nothing else, the presence of Jet Airways proves that public money is not all that is required.

The feasibility study on the Iran-India undersea pipeline will be delivered in three months. This will keep the pipeline well away from Pakistan. Now, from an economic perspective, it makes sense to do it overland, from Iran, over
Pakistan and down to India, as it will be considerably cheaper. But as I have mentioned before many a time, even if there are security guarantees and
insurance for any disruption to the pipeline, the opportunity cost and the risk premium cost will be too high. The pipeline will be a magnet for the hordes of lawless jehadi's roaming in Pakistan. If they can't protect their own internal pipeline, what are the chances of them managing to protect an India destination (mortal enemy) pipeline, which comes from Shia Iran? Zero! Undersea pipeline it has to be.

Another example of our peerless legislator's incomparable economic wisdom
was shown by the Tamil Nadu Assembly. The ruling party has now withdrawn the
free power given to the farmers and the opposition absolutely went berserk.
When will these people realise that nothing is free in this world and somebody has to pay for "free" goodies like this. It is because of this "free" business that the country's power infrastructure has been royally messed up, the state electricity board's financial condition absolutely dire and everybody suffers. What's the point in giving free power, when the power is not there? When there is no value, then it is treated as such.

The World Babble

Monday saw the US markets see good earnings news, many acquisitions and good economic numbers in the manufacturing and technology sectors. This meant that the DOW closed 57 points up at 9858 and the NASDAQ up 35 points at 1967. Japan was closed on Monday, but other Asian markets were up following last week's good US economic numbers. Similarly, Europe closed well up on oneyear highs after corporate results and good microchip sales showed that the green shoots of recovery are finally showing up. It was a flat day on Tuesday with the DOW falling 20 points, NASDAQ dropping 10 points after the
markets tried to digest the economic news.

It's simply a wait and see attitude till Friday's employment numbers come out. The SEC contributed its bit to the general wariness by filing securities charges against ex-Prudential employees. Crude is under $29 a barrel, after good production figures from all major oil producing countries. Same with Europe, with the DAX dropping 10 bps, CAC 40 bps and London drifting lower after rising in the morning. Tokyo, trading off the US highs from Monday, moved up almost 3 per cent to close at 10847.

Wednesday saw CISCO reporting very good numbers, due to cost reductions
which helped the NASDAQ rise by twopoints, while the DOW was treading water, but ran out of steam and closed 18 points down at 9820. The general US
malaise on Tuesday affected Tokyo with the Nikkei closing 10 points down at
10837, while London, Germany and France all suffered minor losses even though there was reasonably good news across the continent. On Thursday, European stocks drifted higher on the back of technology and telecom stocks gaining from the CISCO reports, while the ECB kept its rates on hold, but the Nikkei dropped 285 points because of fears over Friday's US jobs report and the weekend general election in Japan. After spending most of the day in the red, the US markets rallied to close up, the DOW closing 36 points up and the NASDAQ up one per cent at 1976. Friday moved up and down in the US.

In spite of the better than expected jobs report where the job count was almost double that expected, the DOW closed down 47 points at 9807, while the NASDAQ dropped seven points to finish the week at 1970. The unemployment rate dropped to six per cent. All the good economic news is powering the crude prices up as people expect demand to soar and the winter months add their bit to the demand. December crude is up at $30.85 a barrel. Japan rose 76 points to close at 10628 after good company results and economic data made the
investors a bit cheerier, even with the general election coming up during the weekend. Europe felt much better with the US jobs report and the DAX rose 1.3 per cent, while the CAC rose 1.2 per cent.

Interesting news that Microsoft is now offering a bounty of $250,000 for the
arrest and prosecution of the hackers and virus makers behind the two viruses of this year, SoBig and Blaster viruses. These two virus attacks created havoc around the world and caused significant embarrassment and worry for Microsoft. Microsoft is now suffering significant damage because of its security loopholes and lax reliability against attacks. Linux is slowly gaining ground on the Windows market for many reasons, but better security and reliability are the major reasons. This is the reason behind Microsoft's heavy investment in security for its next release of Windows as well as this bounty. One also has to remember that software is not covered under product liability laws, if one is surprised at this, just check out the fine print on the licence forms which people normally click through. Truly it's a different world with software.

The Bank of England, as widely expected, raised interest rates by quarter of a per cent to 3.75 per cent after house purchases/prices and consumer debt started reaching levels deemed to be dangerously high. Sterling, having already
factored in the expected rate rise over the last weekend did not move much,
but inflation is expected to be under more control.

Reuters drew attention to one small factor which will potentially be as subtle as a kick in the affected parts of all the subsidy bandits around the world (which, by the way, includes India). From January 1, 2004 it will be legal to file complaints against countries which give subsidies to their farmers which hurt agricultural exporting countries. So, countries such as Brazil, the Cairns group of countries, and to a lesser extent countries like India can drag the European Union, Japan and USA, the worst of the subsidy bandits, to the WTO disputes panel and ask for damages. Guess what's going to happen, these subsidy countries will fight tooth and nail, but will essentially lose the argument. Does that mean that they will give up the subsidies? Fat chance, they will prefer to pay the damages rather than remove the subsidies, which means that the poor consumers will get hit twice, first on payment of these subsidies and second on the damages.

(Dr Bhaskar Dasgupta writes a weekly Monday round-up on markets and indicators. He holds a Doctorate in Finance and Artificial Intelligence from Manchester Business School and works in London in diverse capacities in the banking sector.)

First Published: Dec 01, 2003 20:43 IST