The size and the daily trade volume of the Indian stock market are hardly exciting to global investors and their agents. Though foreign financial institutions (FIIs) control the stock trade in India, the general belief is that they mostly act as a conduit of money-launderers and hawala operators to help recycle huge Indian black money constantly generated and held abroad. A major portion of the billions of dollars that flood the secondary market in India every year is actually ill-gotten Indian money pumped back through FIIs to partly turn them ‘white’ and earn higher return. A good part of this overseas-held Indian black monies are corporate funds and are also used for M&A purpose at home and abroad. The sovereign rating of Greece, Italy or Spain has little to do with the behavior of the Indian stock market unless funds flowing into BSE or NSE (National stock exchange) are originated from these debt-stricken countries.

Then, why is the Indian market, which is rarely rational in its behavior, getting hammered at this point of time? Does it have something to do with the Indian government’s pressure on its counterpart in Mauritius, a tax haven, to share information on several bank accounts under the double taxation avoidance treaty between the two countries? Banks and financial institutions in Mauritius account for almost 40 per cent of FDI (foreign direct investment) and around 70 per cent FII fund flow into India, both in equity and debt. Lately, franchisees of the Indian Premier League (IPL) of cricket are known to have routed large funds into India through Mauritius. The funds for the multi-billion dollar Vodafone take-over of the Hong Kong-based Hutchison Whampoa’s India mobile telephony operation were routed through Mauritius, causing some $2 billion tax loss to the government of India. Mauritius is not Switzerland. The chances are the former may buckle under the Indian pressure, at least selectively. And, that is hardly good news to shrewd foreign investors.

However, not many are willing to buy the idea that the government will walk that extra mile to disturb the Mauritian investment honeycomb which has contributed tremendously to the economic prosperity of India and sweeten the India growth story year after year since 1992. With the country witnessing a massive trade deficit and foreign remittances from Indian workers in troubled West Asian countries and Afghanistan eroding, Mauritius money in the form of FDI, FII and venture capital have kept the Indian economy going. The government’s anti-corruption and anti-black money rhetoric apart, the countries such as Switzerland, Mauritius, Cayman Islands, British Isle, St. Kitts, Isle of Mann, Liberia, Dominican Republic, the Bahamas and the Emirate of Dubai hold the key to development fund flow into India. Therefore, the government is unlikely to do anything ‘foolish’ to upset the applecart although it may continue to do some posturing against the protective banking laws in these countries for the Indian general public consumption. The foreign investors are not fools to take the government’s lately threatened ‘global war on financial corruption’ on its face value.

Then, what is it that choking the otherwise wildly-behaved stock market? Are the inflation, tight money regime, rising petrol and diesel prices and political uncertainty over the 2G scam are dampening the investor sentiment and stifling the market? No one can deny the contribution of these factors to the recent market volatility. Although high oil and diesel prices should jack up the stock prices of big players in the industry such as Reliance, IOC, HP and BP. Anyway, these factors appear to be more genuine and fearful to investors and the general public than the government’s so called anti-corruption stance to unearth ill-gotten money and hawala funds. The rising pressure of external factors on fund-starved Ambani companies, more on Anil’s power-to-telecom and-financial services combine than on Mukesh’s RIL juggernaut, has lately become a major market concern. The performance of Ambani enterprises has a huge bearing on the Indian stock market. The proposed $2 billion market borrowing by RIL and slower-than-expected output from the KG basin have had a negative impact on RIL stocks despite the ‘timely’ news leak indicating the possibility of the government freeing the existing gas price gag. Anil’s ADAG is, of course, in deeper financial trouble.

It appears that there is also a mischievous move by traditional market makers to keep the stock prices down to commemorate with the impending public offerings from some of the high profile public sector undertakings (PSUs) such as ONGC and SAIL. Though very unfortunate and, as such, immensely deplorable, the ‘mischief’ is real. The same has been witnessed before some of the biggest PSU share offerings in 2008, 2009 and 2010. The idea is to force these PSUs under-price their public offerings consequent to depressed market conditions for bulk subscribers (mainly FIIs) make big buck later at the cost of the government. The upbeat views of Goldman Sachs on the prospects of PSU oil giants such as ONGC, GAIL and Oil India, the excellent performance of BHEL and SAIL’s strong stride to emerge as a big player in the global steel scene had little impact on their stock prices. In fact, SAIL, which had planned to enter the market in June, had suddenly called off the road show. ONGC’s proposed follow-on market offer is due in July. BHEL is to divest another five per cent of government stake. In all these cases, the government stands to lose heavily if the market stays depressed. The government’s loss may soon be private investors’ gain.

Sadly, the government appears to have lost control over the country’s fund management. Despite all the legal and financial powers under its disposal, the government is unable to free the economy and the market from the clutches of the rogues – both external and internal. From infamous Hassan Alis, Tapurias, Balwas, Rajas, Radias, bosses of some of the large corporate houses and stock broking firms to some of the unscrupulous bureaucrats and regulators and top central ministers are calling the shots. They are in control of the economy and the Sensex. In modern market economy, the perception is everything. But, the perception can be fixed. Rogues control the Sensex. And, the Sensex controls the economic perception. The only hopeful sign is that the government is in no mood to give up. It is desperately trying to overcome the pressure to beat the disturbing trends and putting up a brave face to give an impression that the money and market management is yet to go out of its hands. (IPA Service)