There are, of course, some genuine reasons behind the latest market behaviours. The Reserve Bank's cheaper money policy has a positive impact on stock prices. Lower deposit rates always drive money out of the debt market to equities. But, this alone is not driving the stock surge. Huge foreign fund flows in the secondary market are doing the job. The commodity market is entirely in the hands of traders in futures.

The government's indirect tax collection, mainly from excise and customs duties, had dropped by 28 per cent in the first four months of the current fiscal. India's monthly export revenue had maintained a sharp and persistent declining trend since October, 2008, when the strong effect of the global economic melt-down was first felt in the country. The fall in the indirect tax collection reflects the overall slowdown of the economy. In August, excise duty collection improved but it was more or less neutralized by the fall in export income.

There is fresh bad news on the energy front. OPEC, the global oil cartel, has curtailed the oil production to jack up the prices of crude oil to a benchmark level of $ 72.00 per barrel. This could mean a bigger trade deficit for India during this fiscal. India's own crude oil production does not meet even 25 per cent of its requirement. The domestic consumption of petro-products is growing at about 9 per cent per annum.

The direct tax collection grew by only a modest four per cent between April-August, this year. The government's fiscal deficit ballooned last year to 6.2 per cent. The deficit is projected to widen further to 6.8 per cent at the end of the current fiscal. The lower kharif crop projection because of the deficit and delayed rainfall across the country has already been a matter of concern. It is too early to project the production of rabi, the main crop from the irrigable land.

Surprisingly, these fundamental economic indicators don't seem to concern speculators in the stock and commodity markets. The stock indices (Sensex and Nifty) have jumped by over 60 per cent since their levels last year. Similarly, despite the government's repeated public statements claiming that there is no shortage of primary food articles, their prices in both the spot and futures markets are on the rise. The trend in price movements in the retail market has been rather alarming since July.

Let us first take the commodity market where the speculators are in total control of both the spot and futures trade. It is true that the commodity market is globally linked and some food prices are farming up in all major global commodity exchanges. For several years now, the impact of the price movements in the global commodity markets on the Indian market has been rather insignificant, except for oil seeds and edible oil, certain non-ferrous metals and scraps and also bullions. But, not any longer. Lately, the booming trade in commodity futures in the Mumbai Commodity Exchange (MCX) has changed it all.

While the previous UPA government was forced to take a call on the issue of commodity futures and their impact on the spot prices in the face of a growing weekly wholesale price (WPI) index during 2007 and 2008, the government-appointed Abhijit Sen committee report discounted such a link. The panel report under the direction of Sen, an eminent economist, said last year that there is no empirical evidence to suggest a link between the rising prices and futures trading in India. However, such a suggestion was trashed by the latest report (September 8, 2009) of the United Nations Conference on Trade and Development.

The UNCTAD report blamed large financial investors for influencing commodity prices in major markets through futures trading without regard to the factual demand-supply situation. Futures trading in commodities affect spot prices in physical markets across the world, the report said and suggested that national governments should take concerted regulatory measures to prevent such 'supply-price' distortion.

Call it a supply-price distortion or not, the overall index of commodity prices at MCX has of late been on the rise despite any noticeable change in the demand pattern of many of these commodities, which are linked with the economic growth rate. Even if one leaves out the bullion market, where the price of 24K gold had recently peaked at the level of Rs. 16,000-plus for 10 grams, the prices of other commodities such as chemicals, ferrous and non-ferrous metal scraps, utensils scraps, cement, foodgrains, edible oil and other agri-commodities are farming up on a regular basis.

On the stock market front, the latest price surge is unrealistic and uncalled for if one links it with the basic economic indicators, which do not suggest any radical change in the fundamentals and the short-term future prospects of Indian economy. However, it must be noted that such price surge in the stock market is fuelled by the return of large amounts of foreign funds. And, this time, it may not be wrong to speculate that much of the overseas funds playing in the stock market are actually laundered Indian money. Overseas financial markets are still too weak to divert billions of dollars for investment in the Indian market for quick gains. The true face of overseas investors in India's secondary market and also partly in the primary market has always been rather unclear in the absence of strong domestic laws in this regard and the lack of proper scrutiny by the concerned authorities.

Domestic financial institutions and small investors are still shy of returning to the stock market for both the primary and secondary products as the investor response to the recent public issues of shares (IPOs) by high-profile Adani Power and NHPC would suggest. Unfortunately, the government seems to have washed its hands of the market, providing a strong avenue for the circulation of laundered Indian black money from overseas sources. Neither the government nor the industry has contingency plans to deal with another market collapse in the near future. The present bullish market is based on false assumptions and can't continue for long. It would be foolish to ignore the recent warning by Alan Greenspan, former governor of the US Federal Reserve Bank, a shrewd monetarist and a great expert on the behavior of the modern capitalist system. He said:: “The market crisis is not over. It will take place again.”(IPA Service)