Senseless Sensex


what a difference a decade of neo-liberal regimes can make ! At the beginning of the nineties if anybody related to the stock market – foreign or domestic – had made even a minor comment on the pros and cons of a newly elected Indian government he or she would have been completely ignored or laughed out of existence.

But in 2004, on the eve of the new Congress-Left government taking power it seems that the world of Indian politics, at the highest levels, is moved more by the movements of share prices than anything to do with the issues of the country’s common people.

On May 17 and 18, a couple of days before the swearing of the new government, the bulls and bears of the Bombay Stock Exchange went up and down like puppets yanked by invisible strings. On May 18, in what was dubbed as yet another ‘Black Monday’ (one of many such ‘Black days’ in the history of stock exchanges around the world) the BSE sensitive index (Sensex) dropped by 585 points on a single day wiping out hundreds of crores worth of share value instantly.

The BJP leadership immediately blamed the Left parties, who had called for the scrapping of the disinvestment and privatization policies of the Vajpayee regime, for ‘spoiling the sentiment’ of the stock market. Many in the Indian media and the middle-class, whose heartbeats closely follow the movements of the ‘Senseless Sensex’, joined the howls of protest criticizing the Left parties for being ‘irresponsible’.

If foreign institutional investors (FIIs) who rule the BSE with their large corpus of funds and who are the real puppet masters behind the manipulation of the stock market were invisible to the public eye, their intentions were very transparent indeed. The message to the new government was loud and clear – ‘don’t mess around with the neo-liberal economic policies put in place by the outgoing BJP government or we will ruin you financially.’

It is a testimony to the power of such dubious ‘foreign investors’ in Indian politics today that the moment Mrs Sonia Gandhi declined to accept the Prime Minister’s post the only ‘alternative’ to emerge was Manmohan Singh- the original sinner of India’s long slide down the neo-liberal path. As Finance Minister in the Narasimha Rao government in the early nineties, Manmohan Singh–bureaucrat turned politician–had played the perfect rat to follow the pied pipers of the IMF and World Bank.

Though much mellowed and chastened by the Congress party’s eight years out of power (voted out largely because of his unpopular economic policies), Manmohan Singh is still seen by the neo-liberal lobby as ‘their man’. Whether he proves to be as loyal a servant of international capital in the new government as he was a decade ago remains to be seen as the political circumstances have changed somewhat.

That the fate of the Indian stock market has played such a key role in shaping the new government is ominous. It can even be called a minor coup of sorts since it completely ignores the results of the recent Indian elections that were a strong rejection of economic policies that have left the country with a strong stock exchange and a weak economy. While such policies have done ‘wonders’ for the Indian urban/upper middle classes and foreign investors, the country’s predominantly agricultural population and the urban poor have been completely pauperized.

Having seen their favorite stooges from the BJP toppled from power, foreign investors, have sought to negate the popular mandate by blackmailing the incoming government with chaos in the stock market. Between April and early November 2003, net investments by FIIs in Indian markets crossed the $5-billion mark and according to recent reports, FIIs hold roughly 14 per cent of the entire market capitalisation of shares traded in all Indian stock exchanges in India.

Their influence really comes from the fact that FIIs hold a substantial proportion of stocks in “free float” i.e., those shares that are ordinarily available to ordinary investors. Recent reports indicate that FIIs command 45 per cent of the “free float” market capitalisation in the BSE and hence their ability to move the Sensex up and down as they wish.

And it also needs to be pointed that by manipulating the market in such a manner the FIIs push up share prices, induce other small investors to buy the shares and then dump them suddenly to collect hundreds of crores in profits all in one go. If there is anyone all those small retail investors, who recently lost money on the BSE, should be really angry about it is not any politicians anywhere but those who control the FIIs.

The ability of those who control movements of capital around the globe to dictate the politics of so-called ‘sovereign and independent’ countries is staple stuff in many parts of the world. In Latin America throughout the eighties, successive heads of state have been chosen for their ‘investor friendliness’ – a euphemism for being willing to sell national interests at the altar of global financial capitalism.

Even in Brazil, the ‘popular, left-leaning’ government of Lula has had to bow to the pressures of international capital and drop its pretence of implementing basic social-democratic reforms that are deemed to affect the ability of the country to pay interest on its external debts. In chronically debt-ridden Africa there are numerous countries where the President or Prime Minister is often a former employee of the IMF or World Bank who continues to serve these twin organizations of financial terror in his/her new capacity as the ‘national leaders’.

In East Asia, where the ‘tiger’ economies have developed their own brand of economic nationalism, it is often so-called ‘reform-minded’ (another name for servility to foreign capital) politicians who get to head their governments. As the Indian elites rush to emulate these ‘tigers’ what they seem to forget is that in a world dominated by financial capital, every economic tiger has a political cage–of FOREIGN ORIGIN !!!

Virtual Wealth and Real Democracy

“A collapse of the Sensex per se should bother none. The stock market even in the US is neither a significant source of finance for new investment nor a means of disciplining the managers of firms. It predominantly is a site for trading risks and is mainly a secondary market for trading pre-existing stocks or new financial instruments, such as derivatives, that are based on them. Therefore, if anybody loses from short term swings in the market, it is only those who have speculatively invested their wealth in trading stocks in the hope of quick capital gains. That such speculators dominate the market and can indulge in deception to earn their profits is clear from the multiple instances of accounting fraud and market manipulation that have recently come to light in instances varying from Enron to Merrill Lynch. These features are even truer of the Indian stock market in which few shares are actively traded, few investors such as the financial institutions, big corporates and foreign institutional investors dominate, and a small proportion of the stocks of most companies are available for trading. What is more, nobody has inflicted on investors the notional loss that has occurred in India’s markets prior to and after the elections. Some market participants have brought it upon themselves and other investors.

...Seen in this light, the message that has been delivered by the ‘’markets’’, and sensationalised by the media ever since the exit poll results suggested that an NDA victory is not certain, should be dismissed as undemocratic and unacceptable. But the matter is not as simple as it may seem. The real difficulty arises because, enticed by the lavish returns that the policies of the NDA government promised, foreign institutional investors have poured investments into India and come to occupy an influential presence in the markets. These investors are known to have brought in over 10 billion dollars into India’s stocks markets during the last financial year. When they choose to sell out, convert their rupee gains into dollars and exit from the Indian market, the demand for foreign exchange tends to increase. In India’s liberalised foreign exchange market this weakens the value of the rupee, as seen in the significant decline over the first fortnight of May 2004. Movements of this kind can trigger a speculative attack on the currency and threaten a currency collapse. That possibility has substantially increased over the last one year because, drunk with the hype that India’s rising foreign reserves generated, the NDA government has significantly liberalised capital account transactions and allowed Indian residents to legally and otherwise transfer their wealth out of the country. Hence, if a speculative attack on the rupee results in capital flight, domestic wealth holders may join the herd and help precipitate a crisis. A currency crisis of this kind can have damaging consequences for the real economy, necessitating painful adjustments even in countries where the real economy was initially doing well.

Thus, it is not the losses suffered by investors in the market as a result of their unwarranted expectations that are the problem. It is really the fact that FII investors whose expectations had fuelled the speculative highs the markets had reached can damage the real economy to an extent greater than what was achieved under the NDA.”

Excerpted from ‘The Markets vs. The People: A Tale Of Two Mandates’ May 17th 2004, C.P. Chandrasekhar