Is This Dawn for Real? ; Dalal Street Is in Celebratory Mode, but It May Be a Bit Early to Pop the Champagne.

Summary

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Stock markets are famous or should we say notorious for moving ahead in anticipation of an upturn on the economic front. Last fortnight it was no different as the benchmark BSE Sensex gained 14 per cent in the week after the Congress-led United Progressive Alliance (UPA) came to power at the Centre. Foreign Institutional Investors (FIIs) joined the frenzy on Dalal Street, pumping $1.15 billion into Indian equities in that period. Like the rest of the bulls on the street, the FIIs are hoping for some big-bang reforms from the new government to get the Indian economy on the fast track once again.

Now that's a perfectly legitimate hope. The only problem, however, is that as things stand today, it's just that: A hope. 'The stock market has moved ahead of fundamentals, and it will take at least six months for the economy to recover,' explains Jigar Shah, Senior Vice President & Head of Research, KIM ENG Securities. Shah points to just one of the trouble spots, growth of industrial production, which is still in negative territory and for which there's no quick fix.Still, the advantage of a stable government is that it can address such concerns a ballooning fiscal deficit at 12 per cent (Centre and states) of GDP being another during its tenure. And it's such an expectation that's got even economists wound up. Just a month ago, when the Reserve Bank of India had cut key rates, Shailesh Jha, Senior Regional Economist at Barclays Capital, had estimated GDP growth at 6 per cent for the current financial year.

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Is This Dawn for Real? ; Dalal Street Is in Celebratory Mode, but It May Be a Bit Early to Pop the Champagne.

The road Ahead

It's long, with a lot left to be done.

Maintain a low-interest rate regime to enable the focus to be on growth. Likelih...

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