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The stock disconnect

Print edition : Aug 26, 2005 T+T-

THE joke doing the rounds on July 26, when Mumbai scrambled for cover from torrential rain, was that the stockmarket indices would shoot up as rain after all is a harbinger of good economic fortune.

That evening, the Bombay Stock Exchange Sensex gained 47.17 points at close, ending trade at 7552.77. The National Stock Exchange's S&P CNX Nifty closed at 2303.15, up 11.40 points. Mumbai's initial reaction to the cloudburst was typical; it took the shutdown as just a case of a rainy day going out of hand.

But tension was brewing by late evening as mobile phone networks had collapsed, landlines went dead and power failed in several places, putting a stop to the human need to keep in touch.

In retrospect, the availability of hands that stayed over allowed brokerages to kick off another brisk day at trade the following day. News of severe flooding and casualties was firmly out, but the Sensex was gaining, albeit on a lower volume of trade. The BSE's index closed trade up 52.26 points at 7605.03 while the NSE's S&P CNX Nifty was up 15.95 points at 2319.10. It was the first time the Sensex had breached the 7600 mark.

Newspaper reports attributed the gain to first quarter results from Reliance Industries, which were better than expected. Tata Steel held its AGM as scheduled on July 27. This disconnect between corporate India and the financial capital reeling under floods ended partly when the stockmarket decided to stay closed on July 28, courtesy unscheduled bank holidays for two days.

With the heavy showers unabated during the weekend, banks declared another holiday on August 1. But the stockmarket was open even when orders were issued for Nariman Point offices to close down by 2 p.m. By evening, the Sensex had gained to close at 7669.45 while the Nifty was at 2318.05. August 1 was arguably the first day since July 26, when the State showed some strategy to battle the rain although it meant chopping the city's commuter flow by shutting down offices. By the same logic should not the markets have closed? Besides, how much faith do you repose in Sensex gains based on low volumes?

According to stockmarket reporters, the exchanges were likely prisoners of their own policy, which required that markets be open if a certain minimum number of traders had logged in. Despite Mumbai and Maharashtra continuing to have dominant share in trading, the online status of the bourses meant that the minimum number could log in from elsewhere and there was little reason to shut them. That aside, there is also sufficient cold-bloodedness in money now to divorce a regional tragedy from the macro-economic picture and even see business opportunity in reconstruction.

Thus the markets were kept buoyant during this lean period by foreign investors. On July 29, they recorded heavy volumes because the derivative contract expiry, originally scheduled for the previous day, was extended to that day. And on August 1 when authorities sought to restrict movement in the city, trading volumes were back to normal.

The lack of heart in the markets notwithstanding, the impact of the rain on the regional economy was real. Hundreds of shopkeepers and small businessmen suffered losses. As rivers overflowed, big factories in Patalganga and Rasayani, including that of Reliance Industries, were affected. The automobile plant of Fiat at Kurla in the city was waterlogged. Warehouses in Bhiwandi and Panvel were affected. The general stress on logistics will take its toll on factory operations in the State.

In the end, July 26 would most likely remain a day when Mumbai was left with questions about its profiteering soul. Money, this city may have understood, does not give a damn for the country's financial capital. It merely seeks profit.