Business Standard: How do you see the equity markets shaping up in the coming trading sessions?
Sachin Joneja: The markets are moving up in anticipation of a revival in industrial and consequently corporate performance. They are essentially discounting the positive impact of the economic announcements by the government beginning with the Union budget.
Another major factor positively impacting the current stock market performance is the easing of liquidity in the economy and the lower interest rates prevailing now.
In the near term, the markets expect a revival of aggregate demand in the economy in the post-Diwali period. This is expected to lead to improved corporate performance.
In any case, lower interest rates will translate to better corporate profitability even if no other improvements in performance take place.
The current rally is likely to deepen and widen, thereby covering more scrips, if the actual economic performance in the second half of the financial year is up to expectations.
Despite sharp technical corrections, this move upwards is likely to continue as long as the news on the economic front continues to meet expectations.
BS: With the markets booming, do you think that the primary markets are set to witness a turnaround?
SJ: While the answer to the immediate question is no, not yet, it must be remembered that the primary markets are in the midst of a fundamental and essential transformation.
The old style boom in the primary markets, where subscription issues of almost any moderately well-managed company or a new project by an existing group permitted the investor to make very high returns in very short periods of time is unlikely to ever return.
Free pricing of new issues, availability of other fund-raising avenues to corporates and more scientific investments by local mutual funds will continue to make it very difficult for retail investors to easily earn very high rates of return from the primary markets in the future. Nevertheless, if this rally continues, further down the road smaller corporates may again be willing to issue primary paper to retail investors at a discount to the prevailing valuation if institutional investors are unwilling to subscribe to the issue and support the project for any reason.
This will mean that for a little while, there could perhaps be a return to the old days but the quality of issues offered this way will be strongly suspect and may actually lead to the retail investor burning his fingers.
BS: Should the regulatory authorities take steps to strengthen enforcement to avoid such a situation?
SJ: The short answer is no. While regulations will continue to evolve and improve, no major glaring lacunae in the regulations are apparent.
To be fair to the regulators, Sebi seems to be doing quite well, and is already doing quite a bit to evolve, through consensus, better and more modern regulations. The primary market scenario I have just suggested will occur as much due to investor greed for supernormal returns as the desire of promoters to exploit this greed.
I feel market forces will eventually teach retail investors to be more circumspect and moderate their return expectations to more realistic levels. This will be far better than any regulations based on over protection.
BS: Is the market now immune to political developments?
SJ: The primary moving force in the markets is economic performance. As long as the market feels that economic performance will improve despite politics, it will ignore politics.
The moment it is felt that politics or political developments will adversely impact economic performance or economic policy, the markets will again become sensitive to politics.
