However, foreign analysts have predicted that Sensex could zoom-pass the level of 22,000 in 2013-14, although there is no positive news yet on the economy front that should move the stock index up to such high levels. The GDP’s upward movement till last month (April-December, 2012) was the lowest since the economic reform took off two decades ago. The industrial production and exports, normally the prime movers of stock indices, are among the worst performers, this financial year.

The fiscal and current account deficits continue to be high. Imports are surging. Exports are way behind the target. They could be further down due to fast deteriorating Indo-Pak diplomatic relations over Pakistani army attacks on Indian posts, ruthlessly beheading two Indian soldiers. Pakistan is a major importer of Indian farm products. The government is yet to make much progress with the PSU disinvestment. The infrastructure industry has been slow on raising the targeted tax-free bonds from the market. The simultaneous or back-to-back issues of infrastructure bonds and PSU shares to meet their respective targets within the next 10 weeks are going to be tough on the market.

The tax-free bond issues are likely to suck up most of surplus funds from the market. The bond offers are almost entirely from public sector undertakings. As a result, the PSU stocks sale may have to be under-priced, which means the government will earn less per share to meet the fiscal target. The latest retail price index, released only a few days ago, still pointed at a double-digit inflation. Vegetable and food prices in the retail market have reached their record high in the current season. The rising storage and transportation costs could be a reason. The proposed power tariff hike in states and coal and diesel price increase can make things only worse in coming months.

Market experts say the government decision to put off the implementation of GAAR, a controversial tax rule that had threatened to bring down overseas investment into India, and expectation of a business-and-people-friendly budget are behind the rising market sentiments. In fact, market sentiments have improved since the government announced FDI in multi-brand retail with majority control allowed to foreign investors and cleared foreign direct investment in domestic civil aviation up to 49 percent with overseas airlines allowed to promote local joint ventures to operate in India. The petroleum subsidy control by raising petrol and cooking gas prices and proposed rail fare increase from next week to improve the railways’ finances also had positive impact on the market. The proposed banking bill and pension reform have added to the foreign investors’ interest in India.

However, it is a mistaken notion that higher foreign investment alone can logically pep up a domestic stock market, unless foreign investors directly participate in the expansion of the market by promoting local joint stock companies and sharing their fortune with investors in the host country. The point that needs to be carefully looked into by the government, policy reformers, opposition parties and the public is that few foreign investors are interested in setting up joint-stock companies in India. They are interested only in wholly-owned companies and joint ventures where the government policy does not allow 100 per cent ownership status to overseas investors. Existing foreign joint-stock companies prefer delisting by buying back shares held by Indians. Others are interested in buying up good Indian public companies by taking over the shares of Indian promoters. When it comes to business control, foreign investors in India do not seem to truly believe in creating commonwealth. On the contrary, they are only interested in economic imperialism through exercising total control. Foreign investors are continuously influencing government policies to achieve their business goal in India.

The improving market sentiment represents mostly the feelings of speculators and foreign institutional investors, who are already in control of the Indian secondary market through heavy investment in best performing Sensex, Nifty and S&P 500 companies which are largely managed by Indian promoters. Only two of the 30 Sensex companies are strictly with foreign promoters. They are Hindustan Unilever (HUL) and Maruti Suzuki. Of the 50 Nifty companies listed with the National stock exchange (NSE), only four companies are strictly with overseas promoters. They are HUL, Maruti Suzuki, Ranbaxy and Siemens. Both Maruti Suzuki and Ranbaxy were originally Indian promoted. Ironically, the financial performance of almost all these Sensex and Nifty companies, this year, is impacted by economic slow-down and demand downturn. And, few will benefit from the government’s ‘progressive’ FDI and import policies in terms of turnover growth and bottom-line expansion.

Therefore, retail investors need to be cautious about the latest rising trend of the stock market, especially the share prices of some of the Nifty and Sensex companies. They need to be doubly careful about investing in mutual funds, which have let down retail investors badly in recent times, which too are showing rising trend in keeping with the stock market. Stock boosts always bring new mutual fund instruments in the market. Retail investors can look at stocks and mutual fund only as short-term options keeping an eye on their daily price movements. Debt options such as tax-free bonds, triple ‘A’ corporate debentures and fixed deposits and term deposits with banks are still better options before retail investors, at least until RBI significantly cut down bank rates, which is unlikely to come through too soon under the current inflationary situation and the state of government finances. (IPA Service)