What we are witnessing is sheer speculation also known as Satta, which needs no fundamentals, but a mere trigger to rig prices. This very price rise will get deflated as soon as reality dawns on the investors.
Ever since the exit poll results of India’s most acrimonious Lok Sabha elections were announced, the Indian stock markets are on a roll. The BSE Sensex, shot up by 1400 points yesterday, the highest jump in a single day in a decade and there has been a further rally in the BSE Sensex and the NSE Nifty today also. The rally in the share prices is being witnessed across the board ie. in large caps, mid caps, small caps and penny stocks and has not been limited to a few counters. For every company share whose price declined, the prices of three others shot up. The very fact that the crisis-ridden sectors of banks and NBFC witnessed a huge rally, only proves that this boom in prices is irrational and is without any foundation or fundamentals. Not surprisingly, the highest increase in large caps stocks was witnessed in the shares of Adani Enterprises Ltd., whose price shot up by 27% in a single day, indicating the group’s proximity to the powers that be and its expected windfall gain.
This unreasonable rally in the stock market primarily has a political justification. The markets are relieved to note that there will be a continuity in policy making, that there will be a stable government at the Centre and that there will be no fractious coalition at the Centre, which would hurt the image and interest of India. While to us, there is no economic justification in this stock market rally, boosted by the steroid dose of the exit polls, yet there are some who give an unacceptable justification. They say that with continuity in the government, there will be further pruning of interest rates by the RBI and that there will be a huge revival in investments, which are at a standstill at the moment. These are merely notions of hope and there is no reason to believe them, particularly when the Mod government has had a string of failures on the economic front and that the languishing economy is of its own making.
The point of concern is that this rally in prices is not supported by fundamentals and is completely bereft of the underlying reality. This buoyancy in stock prices has neither the support of corporates whose profits are dipping and sales is receding and who are withholding fresh investments due to lack of confidence in the economy and nor of the Indian economy, whose GDP growth has been receding and there are all signs of deterioration in its macro and micro fundamentals. India’s economic growth rate is expected to fall this year and the next, industrial production has been on a decline, consumer spending has fallen, fresh investments are at a disturbing low and so is unemployment at a disturbing high. The MSME and rural sectors have been suffering and so is the household sector, all of whose incomes have declined during the Modi tenures. Inflation has started looking up and the impact of the US-China trade war, the oil price rise and conflict in the Middle East are bound to adversely impact the Indian economy. These are the realities, which do not support the present rally in share markets and make it wholly speculative, artificial and risky.
What we are witnessing is sheer speculation also known as Satta, which needs no fundamentals, but a mere trigger to rig prices. This very price rise will get deflated as soon as reality dawns on the investors, presuming that the exit polls are right. And the triggers for a decline/collapse in share prices will be if the actual results declared on the 23rd May are contrary to the exit polls or when there is a rise in prices of diesel/petrol, as soon as a new government takes charge. At that time it will be clear that the present jump in share prices is risky and irrational. And meanwhile, the rumours continue that it was the Satta markets that funded such exit polls results and manipulated them to their convenience. There could be many other such baseless rumours, to support this artificial rally in the stock markets, which too is baseless in itself.