Market cap jumps by Rs 70,000 cr

MUMBAI, MAY 9: Investors across the country who suffered losses to the tune of Rs 70,000 crore in the recent political upheaval are smili...

MUMBAI, MAY 9: Investors across the country who suffered losses to the tune of Rs 70,000 crore in the recent political upheaval are smiling again. The total market value of their investments in the stock markets has bounced back by the same margin in the last two weeks, thereby neutralising the impact of a series of events which culminated in the dissolution of the Lok Sabha.

Market capitalisation, or the total value of all listed shares held by investors, has shot up by nearly Rs 70,000 crore to Rs 545,000 crore from Rs 475,000 crore in the last two weeks as sustained purchases of stocks by foreign investors and others led to a dramatic recovery in the share values. Sensex which was at 3739.96 on March 31 had crashed to the 3245 level in the first three weeks of April. Now Sensex is once again back at the 3710 level. The fancied index had even touched 3773 on Friday. While several trade bodies are still grumbling about the fall of the government, investors wealth in several leading companies soared in thefortnight. While ITC8217;s market cap shot up from Rs 21,798 crore to Rs 26,848 crore in a fortnight, Reliance moved up from Rs 11,204 crore to Rs 14,258 crore and SBI from Rs 7,789 crore to Rs 10,578 crore. In fact, with the dust raised by the political turmoil settling down, the market cap of 30 leading heavyweights which constitute the Sensex rose by over Rs 25,000 crore to Rs 204,057 crore.

With the phenomenal jump of over 380 points in Sensex in the last one week alone, investors in the length and breadth of the country have heaved a sigh of relief. The recovery also indicates that the market has regained its post-budget gains irrespective of the fact that the country is ruled by a caretaker government. Investors who feared the worst after the voting out of the government and declaration of elections are the happiest lot with the recovery in market capitalisation 8212; notwithstanding the fact that it is only a notional gain in the books.

The 460-point plus jump in Sensex in the last two weeks has turnedthe sentiment bullish. This has mostly happened with the sustained buying onslaught by bulls led by foreign institutional investors who scared away bears who hammer down share prices without holding the shares and later buy when prices fall. While the plunge from the 3739 level to the 3200 level came after the pull-out of the AIADMK party from the BJP-led coalition government and the subsequent tug-of-war among political parties, the dramatic recovery can be attributed to the passage of Union budget and Finance Bill, encouraging corporate performance, low inflation, higher exports and foreign exchange level and the promises of all parties to carry forward the reform process.

The fact that political parties did not play political football with the Union budget was the turning point for bulls. The budget had offered several tax breaks for the capital market, especially mutual funds. The market had feared a financial turmoil in the event of the budget failing to get the clearance. The market later did notpanic when the president dissolved the Lok Sabha and the foreign investors came to the forefront by leading the bull rally. FIIs have pumped around Rs 400 crore into the Indian markets in the last six sessions. With this, FIIs have bought shares worth 210 million over Rs 900 crore after the dissolution of the Lok Sabha two weeks ago.

The revival in the fortunes of the market is good news for the economy in general. As fund managers point out, the market has started learning and surviving the perils of coalition politics. The lesson that everybody has learnt is that nobody can stop the reform process. The gains will be more if the process is accelerated with suitable checks and balances. After the elections, it can become another turning point for the markets and the economy. All said and done, it8217;s not that the path ahead is straight and smooth. The growth in industrial production leaves much to be desired, gross capital formation has fallen steeply in the recent years and fund mobilisation in thecapital market has plummeted. A continued recovery in the market can certainly bring about a sea change on all these fronts. To what extent it will happen, one will have to wait and see.