Sensex bearhug botches UPA bash
After rejoicing the Sensex rise to the unsustainable levels, the government found it too hot to handle so much so that it had to pack off a few of IB sleuths to Dalal Street.The move to send IB in the ring was to bark at the raging Mumbai Bulls;because biting would have destroyed the dogs themselves. The Prime Minister'sOffice which took charge of the Finance Ministry in the absence of P Chidambaram would have reason to be relieved as it could tame the Bulls by about 270 points chopping off those notional gains, which a handful of operators had made in connivance with the unscruplous promoters of the penny stock firms.One does not, however, know how Mr Chidam-baram would react to the PM diktat to the Securities and Exchange Board of India to restore some order in the market where the Price to Earning multiples of many shares had reached ridiculous levels some as much as 400. Simply explained, a PE multiple is the ratio of the real earning per share of company to its market price.
It was Mr Chidambaram who took pride in the Sensex and Nifty indices going to an all time high and was quoted every other day in the pink papers how the Indian economy had performed miracles under his captaincy at North Block.
The PMO realised, though rather late that the way the Sensex had climbed discounting all the negative news, it had a perfect setting for a scam political costs of which would have been disastrous for the UPA which has to go and contest Bihar elections. The share market had also alarmed the Leftists, who of course do not understand much of the game but can do a good job of barking the Sensex down.
It was Mr Chidambaram who took pride in the Sensex and Nifty indices going to an all time high and was quoted every other day in the pink papers how the Indian economy had performed miracles under his captaincy at North Block. High-heeled merchant bankers and fund managers, joined in and acted as cheer-leaders for Mr Chidambaram. These globe-trotting managers were often seen on business TV channels talking up the same set of shares in which they continously trade. The eight billion dollar inflow which the government was touting about became a subject of suspicion for the Reserve Bank of India and SEBI which were trying to find evidence whether the domestic unaccounted money was flowing through the infamous Mauritious route. While the market operators would latch on and leverage adjectives like ??re-rating India??, ?India story not yet over??, they had dismissed all other negative reports like the impact of rising oil prices on the economy and the dangers to the US economy from the impending Rita storm immediately after the deadly Katrina hurricane. The frenzy had reached such levels that an industry chamber, Assocham CEOs surveyed feared a scam unless the market corrected itself. In the end,a knee-jerk reaction is there from the government which may now do more damage than the help it gave to the investing community. Instead of wrecking the market with a few income tax raids, the North Block and the market regulators need to look at the systemic problems which have rocked the Indian markets at least twice in the last 10 years. The systemic issues relate to the tightening of screws on the funds parked with the cooperative trusts and banks. Even the end-use of the banks? so-called non-food credit should be monitored by the central bank and the foreign institutional investors should not be allowed to operate through the shady PN route. If the government does not address these systemic issues, it will have to set up a systemic Joint Parliamentary Committee after every stock scam!