Stocks and stars

BEATING THE STREET

The last few days, there have been persistent rumours that Finance Minister P Chidambaram (PC) has lost favour with the UPA high command and is due to be replaced. In the hothouse atmosphere of Delhi's coalition politics, anything is possible.

But the only source that I could trace was an astrological prediction that PC's stars were bad, blah-blah. Another astrologer has already twice (!) predicted the demise of the UPA government. Although,both deadlines have been missed, this gent is cited as a guru.

As far as one can figure, there is no rational reason for PC to lose favour. Still less is there any obvious reason for the UPA to fold up and disappear. Sure, there are the pushes and pulls of coalition politics to reckon with. But India has lived with that for 15 years and by now politicians have learnt how to operate within coalitions.

Nevertheless, the rumours persist. Rationality is obviously more boring than the mystical power of the stars. Along with actors and, to some extent, sportspeople,

politicians are very susceptible to astrological predictions. This is because the three professions have at least one thing in common. Assuming talent as a given, success is only possible when that talent is allied to a slice of luck.

Investors also have to live with luck. That is why, even when it comes to stock-picking, a surprising number of people calculate the rashis of companies before putting money on the table. I have no idea whether it works any better than randomly throwing darts at stock-listings.

Astrology might well give a higher than normal return because every market has cyclicality. Certain times of the year feature certain trends. For example, it seems Indian stock prices are slightly more likely to trend lower during April than in most other months.

A rational explanation can be found. Investors have just finished paying taxes in April so there is little money to spare. Corporates are girding their loins for the new fiscal year and don't have surpluses to invest in financial assets. There is also a certain amount of caution because the new Budgetary provisions have just come into effect and the market discount is uncertain.

An astrologer may, however, point out that the stars are aligned in a certain formation every April and believe this causes the bearish effects. Whether he's right about the causality isn't important; he makes money.

The post-Diwali period is another time when stock prices can trend lower. My explanation is that the traditional investing communities are less focussed post-Diwali.

Many people are on holiday and most Indians are making big ticket purchases of white goods and cars, rather than buying stocks. The FIIs are getting set to dress up their annual returns rather than pumping in long-term funds.

However, it is also true the stars will be in more or less the same positions every Diwali.

An astrologer who cracks this might make money although he would attribute the causality differently from the rationalist.

I wonder whether the bearish pattern will hold after this Diwali? In that case, the current upmove might be the last hurrah for bulls in calendar 2004.