SOS from Dalal St: Is there anyone in Delhi?

Unfortunately, retail investors, who flocked to mutual funds last year seem to have lost their nerve and are rushing to redeem units even when foreign investors are beginning to nibble at some stocks. Probably for the first time in India, mutual fund managers find that their confident views have to bow before the pressure of redemptions.

The situation is not helped by unconfirmed reports about serious problems at a large private sector mutual fund and fears that the fund may have dumped some of its extensive losses in the commodities market on to its mutual fund schemes. In addition, there are persistent rumours that a top broker squared up several hundred crores worth of trading positions of two large jewellers that had gone horribly wrong. The bad news is everywhere.

Over-leveraged retail investors, especially those who entered the market late are staring at huge losses. In scores of cases, notional profits over the last two years of investing have vanished in the two-week meltdown.

One builder reports that at least 10 customers in a large building project have requested a return of their booking amount to square off stock market dues. Several others are harried about their tax implications for short-term and long-term trades over the last year.

They are furious at what they think is misleading of investors by the Government. Investors argue that if there was going to be so much ambiguity about eligibility for long-term and short-term tax treatment then the introduction of a Securities Transaction Tax (STT) amounts to unacceptable additional taxation.

This is in contrast to the Finance Minister’s arguments when he sold the STT. Ironically, the Finance Ministry has gone silent when there is a need to clarify its policies. As happens in a gloom and doom scenario, investors are targeting their ire at policy makers.

Although the government refuses to acknowledge it, the lack of clarity over long-term and short-term capital gains concessions coupled with increased STT and Minimum Alternative Tax (MAT) for companies has led to simmering anger across all classes of Indian investors.

In fact, investors now point out that whether it is the Fringe Benefit Tax, the more complex Saral Form or the confusion over tax policies all end up giving more powers to tax officials to harass individual and corporate tax payers.

At the same time, there is no attempt to tackle the real sources of corruption or black-money generation.

Another major worry is that rising petrol and diesel prices will stoke inflation. While businessmen and investors realise that oil prices had to rise in line with global trends, they are angry that states and the Central government have made no attempt to mitigate the consequences by reducing taxes.

Add to this the needless turmoil caused by the government’s policy on reservations in higher education, the treatment of private sector reservation and the unbridled speculation in basic commodities that have driven up prices of food grains and pulses and you have a scenario of steadily declining confidence in the government.

This marks an enormous change in perception and sentiment and will reflect in the economic growth and stock prices unless the government shows signs of leadership and willingness to clarify policies.