Perhaps, A Revival

BLAME it on the announcement to review the Minimum Alternate Tax (MAT). Or on the all-powerful god of the bourses, the Foreign Institutional Investors (FIIs). But the last two weeks of 1996, true to the spirit of the season, brought a measure of good cheer to the beleaguered stockmarkets. The Sensex crossed, before the markets closed for Christmas, the psychological barrier of 3,000, ushering in fervent hopes of a revival in the new year. Says Narendra Nagpal, senior equity analyst of BZW Asia: "It's more than likely that the markets will perk up in the first few months of 1997 after which the Union budget will decide its fate."

Indeed, last week the Sensex gained a hefty 230 points, thanks to the buying support from domestic and foreign institutions. On December 17 when the market rallied to touch 3,000, the brokering community was enthused. Said Vijay Pandya of Classic Share & Stock Broking Services Ltd: "Tuesday's market will be decisive for the country's capital market. Market trends can be analysed based on Tuesday's market."

The finance minister's statement on removing MAT after aligning the Income Tax and Companies Acts boosted market sentiment a great deal. The announcement also generated some panic among the shortsellers who rushed to cover their positions. But market sources consider the present FII interest a flash in the pan. "Before the year-end, a lot of foreign funds which have picked up an Indian portfolio, start buying in order to increase their Net Asset Value (NAV)," says a broker.

Still, foreign fund managers are hopeful of continued FII interest in the Indian markets. Says Nagpal: "In January 1997, the year-end allocations for the US-based funds will take place. Hopefully, some of them will be directed towards the Indian markets as well." Since the prices on Indian bourses are still quite low, the allocations for Indian scrips may be more than expected. According to Strong International Stock Fund portfolio manager, Anthony L.T. Cragg: "It's been a horrendous market, but India is close to the bottom. It is now cheap enough to buy." Adds Abhay Deshpande, International Equity Analyst in Chicago: "I don't know too many other places where you can buy blue chips at five times the cash flow."

Is it then time to uncork the champagne? Not quite. Looming large in the backdrop of all market-boosting efforts is the political uncertainty that has kept the bourses on edge for quite some time. True, former prime minister Narasimha Rao's resignation from the Congress Parliamentary Party (CPP) boosted market sentiments as punters felt that the ouster would result in unification and strengthening of the party. "If this happens, Congress can lay claim to forming the government. The markets are also abuzz with the possibility of having Manmohan Singh as the future prime minister. "That will be great news for our capital markets," said a BSE broker.

There's some good news on the economic front, too, dispersed by Finance Minister P. Chidambaram and his faithful team. Industrial growth has improved, and so has credit disbursal. Exports have been inching up since September. The Reserve Bank of India (RBI) has directed all private sector banks to keep aside 100 per cent of their investment portfolio for the market. While this might affect banks' profitability in the short term, the directive will go a long way in cleaning up the system. The Government has also exempted long-term capital gains from taxation if the total sales proceeds is invested in three-year and seven-year units of any mutual fund. This will give a major fillip to the mutual funds industry.

The deletion of the clause pertaining to the issue of non-voting shares by corporates while passing the Companies Amendment Bill in the Rajya Sabha was also greeted enthusiastically by the markets. FIIs, who had been opposed to such stock issue because it diluted their holdings, welcomed this move. The RBI's decision to free advances against shares by banks also had a positive impact, though brokers point out that few banks are actually lending against shares now.

Following their foreign counterparts, domestic institutions led by the Unit Trust of India (UTI) have been buying aggressively for the past few trading sessions. UTI, which suddenly found itself cash surplus following the easing of redemption pressure in its flagship Unit Scheme-64, decided to go in for the low-priced pivotals. And the Government ruling out another petroleum products price hike in the near future, also helped.

What market players are waiting for now is a fall in interest rates, due in January, when many banks are expected to cut their prime lending rates. Says Nagpal: "Sooner than later, the interest rates will have to come down by another couple of percentage points. Add that to an encouraging budget and 1997 may finally take the stockmarkets for a healthy spin upwards." Famous last words? Or wishful thinking? Only time and the political climate of the country will tell.