Marketing scenarios

India must hope for the best, prepare for the worst

INDIAN markets are decidedly nervous about two things: the US economy tipping into a recession and war in the neighbourhood. Given the nature of these factors, it is natural to wonder whether the government’s array of interventionist efforts, some announced and others on the way, are going to make any material difference to sentiment. Of the two extraneous events, the latter looks more probable just now going by reports of Taliban troops massing on Afghanistan’s southern border and heading north towards Tajikistan. The best case scenario for the markets and, no doubt, for President George W. Bush, would be a regime change in Kabul as a consequence of a short two-front engagement. But there is no guarantee of a favourable outcome and a protracted messy conflict could also be on the cards. Markets do not like uncertainty and, unfortunately, at this moment there is an excess of that. Every prudent measure the Vajpayee government has been taking, such as the postponing the Afro-Asian games scheduled for November or the tightening of security at Bombay High and other oil installation points to war clouds rolling in and leads to more uneasiness in the markets.

Patriotic buying, the eighth US Federal Reserve Bank rate cut and share buybacks averted a crash on the first day of trading in the New York exchanges after the terror attacks. Nevertheless there has been a steep fall in confidence and it was manifest in the historic drop in the industrial Dow Jones index. Airlines and, to a lesser extent, insurance companies have joined the line of companies posting negative outlooks and cutting back staffing levels. There are glimmers of light though: defence industries are looking up and the rebuilding of lower Manhattan is expected to give construction a boost. But it gets no better for the technology sector; the Nasdaq composite fell to its lowest point in three years. Oil prices are a constant concern. OPEC promises to maintain steady flows and stable prices but trouble on the oil front cannot be completely precluded. Although it was a morale booster for markets around the world when New York started trading again, the negative undercurrents are strong. Fears of a global recession persist.

It has been taken for granted that UTI, its assets much diminished after the run on it in April and May, would still manage to do its patriotic duty as indeed it did halting the catastrophic slide in the BSE — for the time being. This has restored some confidence to the market. On the other hand, buybacks without having to seek shareholder approval sounds opportunistic. It favours promoters, other considerations have been put aside and investors are not likely to be impressed. More to the point would be measures that restore liquidity to the market. On the foreign exchange front even as the RBI’s timely intervention has stabilised the rupee, concerns remain. India’s large foreign exchange reserves have been a source of comfort in these troubled times. But with the environment for FDI uncertain, FIIs pulling out and exports down, things do not look quite so rosy. As Shankar Acharya, former chief economic adviser, has warned more than once the picture could change dramatically if the global slowdown continues. India must hope for the best and prepare for the worst.