Government intervention has bearish effect on stock markets

The boom is over. In an economy as tightly controlled as India's, the booms and busts are a government-made phenomenon no matter how active the bulls and the bears are behind the scene. As long as New Delhi let the market float along unhindered, it kept on going up but the Government is obviously having second thoughts and has decided to step in.Government intervention is almost always bearish in effect - witness the latest guidelines on bonus issues which are really meaningless and uncalled for but have resulted in shaving off some of the gains made following the so-called anti-inflationary economic packages.Finance Minister Venkataraman may have one or two similar cards up his sleeve, including possibly a freeze on dividends, which will really bust the markets and let in the howling bears through the main door.Though it was good while it lasted, the boom was highly selective in its bonanza. Contrary to popular impression, the scrips of multinational companies were left far behind and could not cope with purely desi companies. Nearly all the high-priced scrips - Larsen & Toubro, Mahindra & Mahindra, Bajaj Auto, Kirloskar Cummins, Indian Rayon, Escorts, Indian Hotels - are 100 per cent Indian companies.On the other hand, multinationals like Alkali & Chemicals, Britannia Industries, Brooke Bond, Dunlop, Guest Keen Williams, Indian Aluminium, Indian Explosives, Peico Electronics among others merely marked time and even at their best were nowhere near the dizzy heights reached by others.The foreign groups seem to be out of favour - with the exception of stray cases like Colgate and Ingersoll-Rand- possibly because they are not able to keep pace with the fast growing Indian groups like Tata and Birla, not to speak of Mahindra & Mahindra, Kirloskar and Garware. This is a trend that needs to be watched carefully for if foreign scrips cease to be the rage that they have been all these years, die markets may be in for a severe jolt.If most foreign groups seem to have been doing rather poorly, there are some like the ICI group which are really off colour. The group is fairly well diversified with interests ranging from fertilisers to polyester and plastics but none of the scrips is quoting above 20 which is peanuts considering that companies with similar product lines are way above 50.Is it that foreign companies in India are finding it difficult to grow or perhaps they just do not want to grow? It is difficult to say but the fact remains that for one reason or another their scrips are scratching the bottom of the barrel and, if there is a major swing away from them, they may fall below par.Most Delhi-based companies have been doing well but Delhi Cloth Mills (DCM) is doing better than most, and even after the new bonus guidelines has been able to retain its bounce. It is quoted around 54.0 (Rs 25 paid-up) which works out at Rs 22.0, a good bargain at that price.The group has a number of new projects in the pipeline including a commercial vehicle project which might turn out to be a money-spinner like TELCO. DCM has its own foundry which now supplies parts to other manufacturers of transport equipment and which should come in handy for its new vehicle project. In any case, it is the first vehicle project in the north and would have been the only one but for Ashok Leyland's new plant coming up at Alwar, not far from New Delhi.Published By: AtMigration Published On: Nov 5, 2013 11:45 IST--- ENDS ---

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Government intervention has bearish effect on stock markets

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