Budget follow up: Laal Salaam to the Market

Dr Manmohan Singh and Finance Minister P Chidambaram won’t easily forget the early days after the 2004 elections and May 17 is one date that they will remember for many years. Not only Chidambaram, even investors still get jitters when they think about the 565-point collapse of the Sensex on that day. Day traders and arbitrageurs, hammering down share prices soon after the elections, spread the word that the Congress-led government backed by Left parties would not last long, reforms would go for a toss and disinvestment would stop. The Sensex tanked by nearly 1,000 points in two weeks when it became clear that NDA would be voted out.

Dr Manmohan Singh tried to talk up the market. Left parties even alleged sabotage by traders. All that is history now. Come July 8, it was Chidambaram’s (read the Congress-led government) turn to give a fitting reply to rumour-mongers and traders who spoiled the show for the Congress government in the initial days. The 0.15 per cent turnover tax on all purchases of listed securities and bonds hit the same day traders and arbitrageurs like a thunderbolt. Chidambaram had his sweet revenge. The tax was a big shock for day traders and arbitrageurs who account for over 60 per cent of the daily business volume. If they pay up 0.15 per cent of the total purchases as tax, they may end up as losers, even on a profitable deal. If they buy 100 shares of Infosys at Rs 1,382 per share, they would have to shell out Rs 207.30 as turnover tax (at the rate of 0.15 per cent of the value of Rs 1,38,200 deal). Now it was the turn of stock dealers to protest. They did it the only way they knew and the Sensex plunged by 112 points on the budget days and fell more later. They abstained from trading for two days, bringing down the volume by nearly 50 per cent. Rushing to SEBI and later to Delhi they asked that the foreign investors and NRIs to pay the tax but spare not the day traders who do speculative business from this turnover tax. In short, they want genuine investors who take delivery to pay up the tax.

With Chidambaram giving a patient hearing, they came back and resumed trading. The Sensex now seems to have stabilised at the 4,800-4,900 level. Even as the turnover tax drama was going on in the street, rumours were flying thick and fast about the political leanings of the trading community. Grapevine has it that the majority of stock traders supported the previous NDA government. But last week’s developments seems to be the UPA Government’s way to tell the market who is boss is. The bottom line is: play only in the stipulated field and observe the norms and don’t play a negative game.