Why are those foreign bulls with their fat purse back to bourses in such big numbers jumping into the stock market ring at a time when the country is experiencing its slowest pace of economic growth in nearly 15 years? Some calls it a PC (Finance Minister P Chidambaram) effect, others are strongly smelling a possible NaMo (Narendra Modi) impact on the country’s economy, post-2014 Lok Sabha polls. Both explanations seem to be exaggerated. Lately, PC has, no doubt, forced a number of bold measures to throw open several hitherto restricted sectors of economy for higher foreign equity stake. And, a few mega deals, especially in the civil aviation sector, have been struck in the last few weeks. British multinational telecom giant Vodafone has sought government nod to invest Rs. 10,000 crore to raise stake in its Indian subsidiary to 100 per cent. But, they don’t alter the abysmal India growth story for at least the current fiscal. Any reference to NaMo is still in future tense, not without riders.

Yet, Bulls have come in hordes ignoring the current political uncertainty and economic forecasts of their mentors such as the International Monetary Fund (IMF) and World Bank and even the global sovereign rating agency Moody’s local associate, ICRA Limited. It’s true that markets often move on investors’ sentiments. However, sentiments alone don’t move a market. Local as well as global economic indicators are most vital for the movement of any market – securities, commodities, financial, derivatives or any other. For the present, India’s key economic and political indicators hardly justify the last five weeks’ bull-run through its stock market. The sudden market surge is irrational and puzzling, as well. There is a disconnect between Mumbai’s Dalal Street and India’s general economic scene.

A re-examination of the latest economic indicators may be relevant. In October, the World Bank slashed India's economic growth forecast for the current fiscal to 4.7 per cent from an earlier projection of 6.1 per cent. IMF’s world economic outlook projected an average 3.75 per cent growth rate, based on market prices, for India in 2013-14. Rating agency ICRA has slashed India's GDP growth estimate to 4.7-4.9 per cent in the current financial year, citing hardening interest rates which will have a negative impact on the already tepid economy. Even a 0.25 per cent key rate hike by RBI on October 29 failed to dampen the FII enthusiasm over pumping in millions of dollars to bet on Indian stocks. Sensex was up 359 points on the day.

In 2012-13, the country’s GDP grew the slowest in a decade to five per cent on the back of a string of reasons like a perceived policy paralysis, slowdown in exports, high current account deficit, nagging inflation and rupee depreciation. The economic scene has further deteriorated this year. For instance, in September, the wholesale inflation number rose to a seven-month high of 6.46 per cent. October was even worse. Rupee got the worst mauling in the last eight weeks. India's industrial output growth slowed to 0.6 percent in August from an upwardly revised 2.75 percent pace in July, hurt by weak consumer demand. The manufacturing sector, which constitutes about 76 percent of industrial production, crawled up 0.1 per cent from a year earlier. The capital goods production contracted by two per cent in August.

The inflation rate had hit a seven-month high in September as food prices climbed, increasing the odds for yet another central bank interest rate hike even as the economy stumbles through its worst crisis since 1991. The wholesale price index climbed to 6.46 percent in September - its fastest since February – pushed up by sky-rocketing food prices such as a 322 percent jump in onion prices forcing the UPA government, facing election in five states in November, take an ad hoc decision to temporarily import onions. However, the latest news is foreign onions are not coming. Meanwhile, potato prices too have started shooting up in most parts of the country. For the common man, other vegetables and meat are increasingly becoming a difficult reach.

Do such economic indicators and forecasts justify the Sensex settling down beyond the 21,000 mark, for the first time since January 2008, the year of the global financial crisis? On October 24, even the broader CNX Nifty index of the National Stock Exchange touched 6,252, its highest in three years. Economy is down. Half yearly unaudited corporate results, on the whole, are unimpressive. The non-performing assets of commercial banks are up. Six months are still left for general elections. It is difficult to believe that market analysts and global investors have already made up their mind about the Lok Sabha election result leading to the unprecedented foreign hot money rush to the Indian stock market. Not surprisingly, domestic investment firms are cautious. The absence of euphoria among local investors has been stark.

Logically, the market boom looks very unnatural and unsustainable. It is rather too speculative to last long on its own. As usual, a substantial portion of foreign funds is being routed through tax havens such as Mauritius. The real sources of funds are often shrouded in mystery. This has always been the pattern. Maybe, it is time that the Securities and Exchange Board of India (SEBI), the market watchdog, and RBI investigate together to help solve the mystery surrounding who or what are engineering the sudden irrational exuberance of foreign investors in Indian securities just ahead of vital five state elections. Local retail investors should be careful as they are invariably the poor losers in the event of a stock bust. (IPA Service)