A Tiny Flicker Of Hope

LIKE most change of sentiments, it starts with a buzz. "Haalat thodi sudhari hai; bakayaa payments bhi aani shuru ho gayee hai (conditions have improved somewhat. Not only have the orders increased, even the payments that were pending for more than a year have started flowing in)," says Neeraj Jain, a Mumbai-based garment manufacturer who had been bemoaning payment defaults for the past one year. Cut to Pushpasen Udeshi, BSE sub-broker, who told an investor wanting to liquidate Rs 30,000 from his portfolio, "Betran mahine pachhi, jare market saru thai, tare bechso (Hold on, we'll sell the stocks after two-three months when the market improves a lot more)."

It's the same buzz also being echoed on a macro scale. Said Shankar N. Acharya, chief economic advisor, ministry of finance, last week: "I was in Mumbai recently and I think there is a beginning of a turnaround in the mood from what was prevalent a couple of months ago. We've always been hoping of recovery round the corner. Particularly with agriculture buoyant, exports seemingly picking up and moderate interest rate levels. I'm not being complacent. It is just that I'm not being unduly down in the dumps as many people are." Exports in the last two months have gone up by 7 and 9 per cent respectively from corresponding periods the previous fiscal.

After a whirlwind tour to gauge the economic mood of the nation, finance minister Yashwant Sinha said in Indore on September 15: "The slowdown in the economy is mainly due to depressed sentiments and lack of enthusiasm, not due to paucity of funds. We're taking the necessary measures to bring back the confidence of entrepreneurs and investors." Admitting an almost complete wipe-out of the small investor from the market, the minister assured that he would implement the Shankar Acharya Committee recommendations for complete transparency in the primary markets and protect domestic industry by imposing anti-dumping duties.

The Confederation of Indian Industry (CII) also sees early "non-quantifiable" signs of an economic recovery: industry's mood is more upbeat today than it was a short while ago, even though overall demand and investment continue to be low. "There are signals that things are improving. There might not be a 'feelgood' factor but there is a 'feel-things-are-not-bad' sentiment that is gaining ground," say CII officials. CII is projecting a 6 per cent GDP growth in 1998-99, against 5.1 per cent in 1997-98. It is predicting an agriculture growth rate of 3-3.5 per cent, service sector growth of 9 per cent and manufacturing 6 per cent.

 As for the government, Acharya thinks it is fair to expect a 3.5 per cent growth in agriculture, which accounts for 30 per cent of GDP. The industrial production index showed about 5.4 per cent in the quarter ended June, better than the performance recorded in the same period last year. Industrial growth could be anywhere between 6 to 8 per cent. Services will grow at 7-8 per cent, unless there is an unexpected collapse of agriculture and industry. "For a largish economy like India to continue to grow at 5-6.5 per cent is very good. I think pessimists in India often miss the woods for all the trees," says he.

Indeed, RBI governor Bimal Jalan feels India could record one of the highest economic growth rates in the world in 1998-99. The central bank chief told a management convention that India's markets had remained relatively orderly amid global financial turmoil and the country had enough foreign currency reserves to cover six months of imports: "It is possible that, thanks primarily to a good  monsoon, our growth rate this year will be one of the highest in the world. "

Clearly, all these efforts at talking up the economy have had a bearing on the stock-markets. Says K. Joseph Antony, chief executive of Amrok Securities, on his webpage: "Some sort of a contrarian bullish undertone seems to be building up. In the short term, the market seems to be performing better than our expectations. It has not fallen to the 2,500-2,700 levels, instead it has gone up. The market seems to be forming a base around the 2,800-3,100 levels and the only way it can proceed from there is in the northward direction. The key fig-ure here seems to be the 3,150 level. If the market breaks this and stays above this level, then it is in all probability a confirmation of a bullish phase. Maybe this is the time to start investment buying and take longish technical positions."

Agrees U.R. Bhatt, director of Jardine Fleming India Asset Management: "The markets could be on a slight upswing. External factors like indications of signing CTBT and lifting of sanctions are positive indicators, while a dearth of money coming in and interest rates going up will be the negative factors. I would range the Sensex between 2,900 and 3,400 over the next few months." Adds Gul Teckchandani, chief investment officer of Sun F&C Asset Management: "The market is bottoming out in technical terms." Says Unit Trust of India chairman P.S. Subramanyam: "The market will pick up, gather momentum and will be moving up gradually. I look forward to growth in the October-December quarter."

AGAINST a backdrop of the global crisis, India is indeed on a better wicket. An annual review of India by the IMF noted that economic growth was positive, the trade balance position satisfactory and foreign exchange reserves relatively comfortable despite the Asian crisis. However, the report did point out that "the near-term situation still contained substantial risks and the reform agenda was far from complete."

The authorities have launched measures to boost the market in the short term. The law ministry has approved a proposal to allow companies to buy back shares. Says M.G. Damani, ex-BSE president: "Although it's difficult to predict which way the market will go, some ad-hoc announcements may bring cheer before the festive season. The government has been lingering too long over buyback of shares."

The market is now eagerly awaiting the notification of the buyback scheme. Says Bhadresh Modi of GIC Asset Management: "Share buybacks will trigger off the revival of the dull market like nothing else." Adds Ketan Desai, chief of research at Nucleus Securities: "There will be a positive outlook for the market on this account." However, most analysts feel this euphoria will not last long. "The market is range-bound here, we are not going to see too much action either way," says Brian Brown, managing director of Indo-Suez W.I. Carr Securities. Although India is perceived to be better off than other regional markets, shares will not jump unless there is strong evidence of economic improvement, analysts said.

Sinha also believes that the government's disinvestment programme could revive the markets and he said last Monday that retail investors would be offered shares in disinvesting state enterprises at a discount. The government plans to disinvest both in the domestic and overseas markets, but it may not get a good price overseas at this time.

According to analysts, share buyback and private sector participation in insurance can bring a sea change in investment sentiment. While buyback will act as a cushion against panic attacks in the markets, entry of the private sector in insurance will widen the scope of investment institutions. Worldwide, insurance and pension funds are the biggest and most powerful investors. Whether in the infrastructure sector or in the secondary markets, funds from private insurance companies can make a huge change to the investment sentiment.

Indeed, both local and overseas investors are buying as sentiment turned positive on a belief that India's economic fundamentals were better than most of its other neighbours. "There seems to be a realisation that India is holding out better than other economies in the region, we are more protected and our companies are doing quite well," says BSE broker Ramesh Damani. An increasing buying trend by foreign funds is seen as an indication of this. "We believe foreign investor inflows could rise over the next few months as the relative isolation of the Indian market is now seen as its strength," Kaji & Maulik Securities said in its daily report. But, adds Dam-ani, "A real bull run will be triggered off only if the government announces a pragmatic disinvestment programme and India signs the CTBT." Sinha has announced that the first of the disinvestments will start soon.

 But as stockbroker Parag Parikh says: "Today money in India has become shy and vigilant and smarter. It will only go to the right allocation. If bourses have to grow, some tough political decisions are called for: abandon what does not work (PSUs which are net destroyers of the nation's wealth), open up infrastructure and reform the banking system. The government appears to be dead serious in opening up the infrastructure sector. That is where the succour lies for the Indian economy, and consequently the Indian bourses."

For the short term, however, US Federal Reserve Chairman Alan Greenspan's statement that global financial turmoil would be more than enough to curb US inflation, the strongest indication yet that he may be considering an interest rate cut, is enough to boost Indian stock indices even further.