Markets no barometer of Budget rating

The IMF has said that the global economy is recovering from recession and that India along with China will lead the global growth. But is the Indian stock market convinced? The stock market plunged to its lowest ever leap downwards on any Budget presentation day in India's history since Independence.

On Wednesday, two days after the Budget was tabled in the Parliament, gloom still hung over the stock market. Sensex plunged below the 14,000 mark. Budget Day 2009 was the worst ever with Sensex plunging 850 points. Is that an indication that the Budget failed to impress the investors, players in the stock market and therefore not up to the mark?

Investors say that they had hoped the new government would push through pro-market reforms, but the budget it unveiled lacked major policy changes. Instead, it focused on increased borrowing and spending to aid farmers and the poor.

As a result, the stocks sell down was the biggest in six months.

But the budget was hailed by many other sectors. Many called it a long term plan to take India forward rather than a myopic attempt to please all sections of the economy. Speaking to CNN-IBN, the Finance Minister Pranab Mukherjee had admitted he had to taking calculated risks to see that India gets back on to the higher growth path. The question being debated on Face The Nation was: Are markets the only barometer of a good Budget?

At the beginning of the show, viewers polled 34 per cent ‘Yes’ and 66 per cent ‘No’ to the question: Are markets the only barometer of a good Budget?

To debate the issue was a panel of experts that comprised of MP and Congress spokesperson, Manish Tewari; the MD of Oxus Fund Management, Surjit Bhalla; the Head of the Economic Cell of the CPI-M, Prasenjit Bose and Chief Economist of JP Morgan India, Jehangir Aziz.

Is the largest ever fall on a Budget day due to the market's inability to understand the Budget or is it because the UPA-2 government is not so much into reforms? Is this a government only into politics and not clued in to good economics?

MD of Oxus Fund Management, Surjit Bhalla agreed that there were elements of truth to both the statements but neither were entirely true. "If anyone could predict the market would do, they won't be sitting here, they would be millionaires or billionaires."

"However, the stock market and all markets in general are major devices for checks and balances. This is the only way that the people could communicate back to the government, particularly one as politically inspired as this one, that listen what you are doing could be wrong. So it is very important to receive market reaction, to gauge market reaction and then correct course if need be," Bhalla added.

Is this idea lost on this government and is it too busy winning over the goodwill of its electorate and failed to bolster the confidence of the market elements?

Chief Economist of JP Morgan India, Jehangir Aziz disagreed that the contents of the Budget lacked anything. "I thought this was a better Budget that we have seen in quite a while," Aziz said adding that the market was expecting a lot.

There is a bill that is pending on raising cap of Foreign Direct investment in Insurance that is pending in the Finance Ministry. Could the Finance Minister not have talked the market into what to expect soon, so the sentiments were protected?

"Since 1991, when the then Manmohan Singh presented the Union Budget, we were used to seeing a Budget that was the work plan of the Government or it was the vision of the Government. This Budget is neither. I think it was a presentation issue. The content was there, it had to be found in translation," Aziz added.

Crisis of packaging

MP and Congress spokesperson, Manish Tewari disagreed that the stock market is representative of a significant number of people in the country as D-Mat account holders in this country of over a 100 crore people. "The stock market is not a barometer of the Budget, at best it can be the barometer of the corporate economy but certainly not of the country as a whole."

Tewari also refused to believe that it was an issue of packaging or presentation. "The senior-most minister in the government who has got eons of experience behind him, is today the Finance Minister and I do not think that he does not have the political savvy to package his Budget properly," said Manish Tewari.

Tewari pointed out to the fine print market operators seemed to have missed out but are a part of the Budget plan to strengthen the economy. "There are a lot of initiatives that the Finance Minister has taken that lay the foundation for long term structural reforms," Tewari added saying that it depends on what prism of reform that one is looking it through.

"When a Finance Minister presents his accounting statement, he presents it for and on behalf of the billion people who populate the country," said Manish Tewari.

Congress, more Left than the Left

CPI strongman AB Bardhan had once said that the SENSEX does not matter, a sentiment that seemed to be gaining an echo from Congressman Manish Tewari. Is that not a very callous attitude on part of any party to not understand that people from all walks of life now invest in to the stock market and are not disposable.

Head of the Economic Cell of the CPM, Prasenjit Bose pointed out to the fact that there are millions of farmers, workers and small traders and businessmen in this country who do not invest in the stock market.

"I think there should be a sense of proportion on part of those who advocate greater sensitivity to the stock market. Much greater sensitivity is required for farmers, workers and the middle class," said Bose. Bose also expressed that big institutions often manipulate the stock market.

Bose said, "It has been understood globally that the stock market remains what was known from the 1930s Great Depression, as a hub of irrational exuberance. Noted Economist Charles Kindleberger in his book Manias, Panics, and Crashes: A History of Financial Crises has characterised the functioning of the stock market. They (the market players) overreact.

Bose called the stock market a fickle-minded institution that see-sawed in a bizarre manner. It went from 21,000 in January 2008 to 8,000 in December 2008. He pointed out that the same SENSEX just before the Budget goes upto 14,000 and takes an unpredictable dip on Budget day.

"Why should any Economist or any Finance Minister give credence to such a fickle minded institution?" argued Bose.

"Wrong!" declared Surjit Bhalla. "Let me state my official and personal view that it was a very, very good Budget and one of the two best Budgets since 1991. But having said that the attitude of the Congress party is somewhat surprising as there is a trace of arrogance and contempt for the stock market," said Bhalla.

"Really guys," Bhalla appealed to the Congress people, "you had a really good Budget, you failed to communicate. Why don't you admit to the reality? Lets not differentiate that these are rich people, the investors, not really the aam aadmi; that we have got NREGA and other programmes that do not really reach the poor but only reach the political intermediaries and their clientele which is much richer anyway than the stock market clientele," said Bhalla refusing to accept the sidetracking of the stock market.

Is the UPA not misreading the mandate as people have voted not just for NREGA and loan waivers but for Dr Manmohan Singh who is the Father of economic reforms in India?

Manish Tewari said that this Budget was in step with those sentiments. It is a reformist Budget if one reads the fine print, he urged.

"Here is a Budget which talks about reforming fertiliser subsidy which is not just the single biggest drain on the subsidy system but also politically contentious. The Finance Minister did not hesitate to flag it," Tewari argued.

But the debate is not whether it is a good Budget or not but the non-interpretation of content. Sentiment has been damaged. But Tewari defended the conservatism of the Finance Minister as a guarding measure while the world economy is in doldrums.

Jehangir Aziz pointed out that the market cynicism is an effect of the Congress party's inability to communicate.

He pointed out that investors or market players are no more members of the old boys' club but young 20-something people who trade instantaneously. They have no patience for finer print.

"Well then, teach them," challenged Tewari.

"Either we accept the reality and package our message accordingly or deny the reality and face the consequences of the market drops like on Monday," countered Aziz.

Tewari expressed amazement that if a farmer from a remote village could understand the Budget's contents, what's the problem with the MBAs and the educated players on the stock market?

Why can't the Budget planners include the farmers and the stock market people? Is there a problem?

Prasenjit Bose said the Congress is reformist at the core where economy is concerned but now sits on the horns of dilemma. This Budget he felt was only an indication of what the Congress party will have to keep making choices on in the times to come. "Which side is the Congress party going to tilt, the Right or the Left?" asked Prasenjit Bose.

Final SMS/ Web poll result: Are markets the only barometer of a good Budget?

Yes: 32 per cent

No: 68 per cent

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#Union Budget 2009 #Face the Nation #Markets #Sensex