Confidence building measures vital for markets

MUMBAI AUG. 26. In the aftermath of serial bomb blasts in 1993, the then Chief Minister of Maharashtra, Sharad Pawar, said that the aim of the blasts was to destroy the business confidence in the commercial capital. The same was stated by the present Chief Minister, Sushil Kumar Shinde, immediately after the bomb blasts here on Monday.

However, everyone was aware that the serial bomb blasts on March 12, 1993 were a reaction to the riots that took place in early 1993. This time around, there is only conjecture as to what could have prompted this extreme step.

Politicians always tried to avoid addressing the real issues and rather put the blame on a convenient peg. As Mumbai is the commercial capital of the country, according to them, every bomb planted in the city is aimed at destroying its business confidence.

However, today's stock market movement, the sensitive barometer of this business confidence, is a clear testimony to the resilient nature of the commercial capital and also proves the politicians' reasoning for the bomb blast is a lie. The market bounced back today with the Bombay Stock Exchange 30 share sensitive index (Sensex) recording the largest single-day rise in the last 30 months. It surged above the 4,100 mark and gained 147.66 points to close at 4152.29, up by 3.69 per cent from yesterday's close. The last time the sensex gained more than this was on March 14, 2001. This proves that the markets are on a sound footing.

In addition the oversold position in the futures and options segment which needs to be squared off this week, helped prop up the market.

The cut in repo rate has come in handy. The deposit rates are expected to go down which will divert even more savings towards investment in the capital market.

The rupee was steady today and opened at around 45.90/45.91 a dollar and soon settled around 45.86/45.87 and remained at that level throughout the trading period. Yesterday, the rupee lost around 18 paise (intraday) and touched around 46 a dollar. In 1993, at the time of the serial bomb blasts, there was no major movement in the rupee. Just as the rupee opened steady today, same was the case after the 1993 bomb blasts.

At this point, it is worth analysing the 1993 market movement following the serial blasts. The market peaked out at 4546 in April 1992 and subsequently (since 1992) embarked on a clear downtrend attributed to the Harshad Mehta Scam.

The bomb blasts took place on Friday, March 12, 1993 — even shaking the Bombay Stock Exchange — the Sensex closed at 2361.15 compared to the previous day's close of 2330.

On the next two days, the Sensex rallied to a high of 2459 on March 16, 1993 (March 15, 2421.27). Subsequently it continued to drift lower finally making a bottom at 1980 on April 27, 1993. It took another four months to cross the March 16 peak of 2477.

Then the rally extended up to September 1994 when the Sensex made a new high of 4643. This proves that the gloom in the market was caused by the stock market scam and not by the serial bomb blasts.

More than the bomb blast, businessmen are worried about the political upheavals and the resultant uncertainties. The present happenings in Uttar Pradesh, where the Chief Minister Mayawati severed her tie-up with BJP, is giving confusing signals to the financial markets. Markets are awaiting the unfolding of this drama at the national level.

It is in fact, these kinds of political uncertainties which are more damaging for industry and business.

Politicians failed to bring confidence among people with their non-visionary and inept handling of sensitive issues. Now, confidence building measures among the people should be given more priority, so that the much touted `business confidence' then automatically falls in place.

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