Monday, May 17, 2004
RE:Bloodshed at the Market
Sure..the declaration of portfolios will help esp if Manmohan Singh/P Chidambaram is the FM. However, with the left parties having a strong presence, I am not sure how he will be able to pursue his agenda. The left declared that the presence of FIIs was responsible for the volatility of the markets. The hidden meaning here is that they don't want FIIs as well. Hope our Italian PM (who will have to rely on Manmohan Singh) does not do everything to satisfy the left to retain power. So, we are in for dark times as far as the economy goes, unless we have a FM who will not be the traditional congress psychophant.
The markets will watch nervously as events unfold in the first few months of this administration. Such a severe reaction by the markets is unprecedented.
This also signals a weakness in the Indian capital market structure itself. I am yet to get into the details but its the basic problem of a small % of FIIs controlling a large % of the market. Such mobile capital is not one that you want to attract. We really need to see mutual funds play a more active role in India. There is currently a lot of debate taking place, but I have yet to form an opinion about the structural issues plaguing the Indian capital market.
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