By Sreekumar Raghavan
India’s general elections are often watched with excitement and interest because it is one of the largest democracies in the world. The process itself is cumbersome and takes place in different dates in various parts of the country for administrative convenience and security reasons.
Citizens in democracies often have to wait four or five years to pass a verdict on the governance that affects pretty much every part of their daily life. “Shoe-cide” attacks perhaps portray the extreme disgruntlement with the administration or leaders although it should never be encouraged. If it was a shoe that was hurled against P Chidambaram, Advani was lucky enough to miss being hit by a slipper.
But stock markets and to a lesser extent does deliver a verdict every day or intra-day as major decisions by governments, international institutions, trade data, policy announcement, central bank regulations all tend to move markets up or down. This is often interpreted to mean that corporate or business community is happy or unhappy as the case may be with a particular decision or announcement.
Economic calendar globally is littered with official announcements of data, policy or prediction every other day of the week and it is only natural that traders look towards these positive and negative data to make their positions or moves in the market.
The latest equity rallies across markets are being interpreted as a renewed optimism that economic recovery is expected to take place soon on the strength of stimulus packages especially in China and USA. Reuters reported that world stocks steadied on Monday, holding off last week's three-month high, while government bonds rose as investors grew cautious before a series of first-quarter company results due this week. The MSCI World Equity index hit its highest level in three months on Friday.
In fact the rally in equities have had its impact on commodity Futures with gold losing its appeal atleast temporarily as the safe haven investment. Recent surge in Rubber Futures was almost entirely attributed to Chinese imports which did or did not take place. So is the shortlived rallies in base metals.
Nobody wants some announcements to appear every day more than equity markets, commodity and forex markets. Unless, it happens markets will move in predictable patterns or even be static. How then can the Bulls and Bears make money out of it.? So it is plausible that market rallies or dooms not in response to government policy as such but a significant group of traders want it to happen so that they make a killing. After all the stock market is littered with bulls, bears, stags, mouse, lions and tigers which I referred to long back in a newspaper Middle called The Animals of Dalal Street.
As far as commodity futures are concerned everything should be focused on the “underlier.” But alas, here the players aren’t as animal like as those in Dalal Street but also are keenly worried about the economic downturn. Base metals, precious metals or agri-softs can’t move without a recovery. Thank god, the ordinary farmer or the goldsmith is still not part of the Futures system. If they were, would they be able to compete with the likes who use computer modeling or calculus to calculate their Mark-to-Market (MTM), daily margins et al.
It was only after I read a few books on the concept of Futures trading and derivatives that I understood what Anil Mishra of NMCE once told me, farmers should never speculate they should invest their time for the crop. Or when Rajesh Mehta, Chairman of leading jewellery manufacturing firm, Rajesh Exports Ltd commented,”We don’t indulge in Futures which is essentially speculation. As far as gold is concerned it is primarily a good investment option.”
So should we read too much into the movements of Sensex, FTSE 100, Dow or LME, MCX indices which really means we are only tracking the reaction of a few speculators who want to make money either the market falls or booms? For sure it never shows the aspirations or opinion of the man on the street who has to wait for five years to cast any verdict.
