Guru Das Capital

Gurudas Das Gupta, the CPI MP and general secretary of the All India Trade Union Congress, has demanded an immediate inquiry into the source...

Gurudas Das Gupta, the CPI MP and general secretary of the All India Trade Union Congress, has demanded an immediate inquiry into the source of funds in the rising Indian stock market. Das Gupta8217;s sudden interest in the stock market is heartening, but unfortunately a lack of understanding of markets leads communists to look for market manipulation whenever the market goes down, as it did on May 17, 2004, or when it goes up, as it is doing now.

Dasgupta is concerned that many private companies have high price earnings P/E ratios, while P/E ratios of public sector companies lag far behind. Is Dasgupta suggesting that these market manipulators want to make money only from stocks of private sector companies, and their nationalist sentiments prevent them from manipulating prices of public sector companies? Or is he genuinely worried about the low P/E ratios of public sector companies? Since the P/E ratio reflects the level of optimism about a company, is he concerned about why it is that the investing public does not value the stocks of PSUs high enough? Is he aware that this reflects bad corporate governance of PSUs? If Dasgupta wants PSUs to have high P/Es he should demand better corporate governance of PSUs rather than question rising P/E ratios of private companies. When the P/E ratio of the top 2,573 companies reflected by the COSPI P/E is 16 per cent, and is based on consistently high earnings growth, why is Dasgupta scared? Because prices of penny stocks8212;the shares of defunct companies which tend to gain disproportionately in rising market8212;are increasing? Such companies will witness disproportionate declines when the market falls and those betting on them will lose out. But they constitute just 1 per cent of the total market capitalisation of the stock market.

Dasgupta should leave the ups and downs of the stock market to the economy. When the global business cycle is up, when the economy is doing well, markets will go up. So what really is the cause of Dasgupta8217;s concern? Could it be that trade unions members are participating actively as investors in the stock market and he is worried about an impending fall in the market?