The Chidambaram Game

The Indian Sensex (Index) has risen by more than 2.5 times in the last 2 years from 5,000 levels to 12,500+. However the last few days have seen a very steep correction with the market correcting by more than 25%. To witness a lower circuit (selling freeze) on the Index is rare.

While, many factors have been used to explain this rise in the Index, one of them is the :

The Chidambaram FACTOR

While the election of the Congress led Government was followed by the May 17th . 2004 black Monday crash, the markets recovered soon after. The recovery in the markets soon followed with the realization that ManMohan Singh is to become the PM, the man behind the liberalization in 1991 and Chidambaram’s the man who delivered the Dream budget in 1997.
Chidambaram as the finance Minister is looked upon as a Markets friendly FM, who has been very active in coming to the rescue of stock markets every time they corrected or drifted downwards be it for clarification regarding CBDT (taxes on FII), Securities transaction tax (STT), or doling out statements about who is buying and who is not.

History of Chidambaram’s comment on the Sensex (Source: bechalis.blogspot.com)

Finance Minister P. Chidambaram at commenting on various milestones (in both directions) of Sensex.[December 2004] Sensex at 6000 : “I don’t react. As long as the Sensex is driven by the fundamentals of the economy, I am very happy.”
[July 2005] Sensex at 7000 : “If the Sensex crosses 8000, then I think that I would be concerned.”[September 2005] Sensex at 8000: “We are looking at the price-earnings (PE) ratio (of Sensex and Nifty). At this level, they look comfortable.”
[December 2005] Sensex at 9000 : “I expect the Sensex to rise with investor and business confidence rising. However, SEBI and I watch the movement carefully to see if there is any manipulation…… My impression is that mutual funds are quite active in the markets, meaning thereby that small investors are putting their money in the mutual funds.
[March 2006] Sensex down by 216: “It’s a correction. It’s nothing.”
[May 15, 2006] Sensex down by 463 : “I will put it as a correction provoked by reasons which are quite understandable. All metal prices are down and there is some impact of cement prices… and increase in US Fed rate. All markets are doing the same.”
[May 18 2006] Sensex down by 600, and on its way to register a fall of 826 : “Everyday movement in the stock markets does not require a comment.”

The same FM had commented a few years earlier that “He was more concerned with what happens in Khan Market (in Delhi) than in the Bombay stock market”  meaning that the concerns of ordinary Indians were more important than the rumblings in  Dalal Street.

The latest comment by Chidambaram “saying every market swing didn’t deserve a comment?” is a proof his regular intervention to keep the market sentiments high. There is a growing confidence among the investors that the BIG Boss, market savvy  Chidambaram will not let the markets tank, leading to the euphoria.

Before the Euphoria which finally led to the stock market crash in 2000, the then Fed chairman Alan Greenspan also was viewed as a savior of the stock market. Greenspan had made public his fears that a drop in the markets could impair the real economy which was interpreted as that the FED is in favor of the stock market buoyancy and would protect it from tanking. Alan Greenspan also stood true to his words by rescuing the Stock markets from the  Russian debt crisis in 1998, bailing out LTCM ( Hedge fund debacle) and  the Y2K crisis which led to the 2000 Euphoria.  (Irrational exuberance. Robert Shiller)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s