It seemed as if the dark clouds of the 2008 crisis were revisiting Dalal Street,at least for some hours today,but then the markets recouped. While the Sensex the benchmark index of the Bombay Stock Exchange mirrored the US markets and plunged over 702 points intra-day,economists and market experts said investor sentiment can be more than revived by focusing within and pushing ahead with domestic reforms. By the end of the day,the Sensex battered by high inflation and interest rates of late staged a partial intra-day recovery to close at its lowest level in more than 13 months. The fall today was attributed to a possible US double-dip recession and worsening European sovereign-debt situation. This had sent global markets from Wall Street to Tokyo floundering by up to six per cent. Better sense prevailed as the day progressed and Street veterans realised the woes (read the fall in commodity prices,especially crude oil) abroad will benefit India. The Sensex clawed back to close with a loss of 387 points at 17,305.87 points a loss of 1,566 points since July 26 when the RBI hiked repo rate by 50 basis points to check rampaging inflation and 3,200 points in the calendar year 2011 so far. Top ministers and regulators were immediately on their feet,seeking to calm frayed market nerves. While Finance Minister Pranab Mukherjee said this is nothing domestic.. it is substantially due to external factors,Securities and Exchange Board of India chairman UK Sinha said,we are closely watching the situation and our belief is that everything is perfect and right in markets. The most pertinent message of a possible softening of rates sooner than later came from the RBI. We saw some softening of commodity prices in May-June but that trend did not persist and by the time we started the July process (monetary policy),they had stabilised. Now,if this is a beginning of a softening trend,it will have some impact on our thinking in terms of our stance, he said,giving hopes that the RBI would not hesitate to step in and reverse the rate tightening cycle once the inflationary pressures triggered by commodity prices subside. But the million-dollar question is: will the UPA government take up crucial reforms it promised in the beginning of its second innings. Rangarajan,whose council bluntly told the government hat it had lost time,said to revive investor sentiment,the government must bring focus back on infrastructure,and resolving vexed issues of land acquisition. While the high growth in itself will prove attractive to investors,there are a number of other things that can also be done to revive investor sentiment. The many projects in the pipeline should be completed fast and also special attention should be given to the infrastructure sector. Growth in power generation should be the top priority and production of coal should be accelerated for this. Action is also required to resolve issues of land acquisition and environmental clearances to ensure rapid production in sectors like coal, said C Rangarajan,chairman,PMs Economic Advisory Council. The markets saw a steep slide recently on concerns that higher interest rates will dampen corporate profit growth and measures initiated by the RBI to check inflation will pull down economic growth. Besides,India Inc also said sentiments the most important intangible that drives investment had taken a knock. In a recent meeting with Finance Minister Pranab Mukherjee,industry captains such as Anand Mahindra,Ratan Tata and YC Deveshwar had pointed to the general malaise and paralysis of the government machinery. The stock market behaviour today was largely influenced by what happened abroad. We believe that the Indian economy remains strong and have forecast an 8.2 per cent growth in 2011-12,which should be regarded as high and respectable given the current world economic situation, said Rangarajan. A section of experts on Dalal Street feels the problems abroad may turn out to be a blessing in disguise for India. The weak global economy,if it stays weak,will reduce demand for commodities and may remove the speculative element present there. So,there are expectations that commodity prices may correct. If this happens,our concerns on inflation and hence interest rates,will be addressed to a large extent, Dipen Shah,Senior Vice President,Kotak Securities. The faltering economic outlook in the US and Euro zone may worry Indian IT companies which get their profits from these areas. And they fell by up to four per cent on the bourses on Friday. Going ahead,apart from incoming economic data,the response of policymakers would be very crucial to watch. In the near-term,risk aversion will remain high,impacting flows to EMs including India. Further,global growth slowdown would also impact domestic growth prospects. However,lower commodity and energy prices will be favourable for Indias macro outlook, said a senior official of financial group Edelweiss. That said,a major worry would be how foreign institutional investors (FIIs) are going to behave in the coming days. FIIs who pumped in nearly $30 billion in 2010 pulled out Rs 1,788 crore from India on Friday,taking the total FII outflows to over Rs 8,000 crore in 2011 so far. After Dow Jones of Wall Street plunged 4.3 per cent recession fears,Taipei fell 5.58 per cent on Friday,South Korea 3.7 per cent,Hong Kong 4.3 per cent and Tokyo 3.72 per cent. However,Dow Jones futures rose on Friday after a better-than-anticipated jobs report eased some concern following the drubbing suffered in the previous session.
