Radio FM!

VOLATILITY in the Indian stock markets is mainly due to the shenanigans of FIIs and Mutual Funds. Even our Finance Minister, P. Chidambaram believes this, else why would he have kept harping on television that mutual funds have enough money to absorb any FII exits; and that retail investors who have a long-term view should stay invested, make informed investments, and if they cannot do this, shift to investing in MFs!

Our FM was giving directives to investors about long-term investing, without clarifying what was meant by long-term. After all, India’s fundamentals could change in 5 years, and mutual funds are subject to market risk, and then again, not all of them have performed in poor market conditions.

What would happen if in 2 years we have an election, and a new FM comes along and tinkers with the financial system, for better–or worse–for worse. Would companies attract the same PE despite better fundamentals?

Perhaps this is not for the FM to say, but our dear FM speaks suavely on all occasions except when it is most required. The right thing for him to do was to have quit smiling, and clarify the CBT’s circular on taxing the FIIs, during market hours. Alas, too little was said too late. But he never stopped sheepishly smiling.

That our FM bleats such statements displays how immature we in the Indian stock markets are. You would rarely, if never, hear the Japanese finance minister, or the US Federal Reserve making such childish statements. They talk economy, fiscal deficit, inflation, interest rates and other such indicators. It isn’t that the US and Japanese markets there not driven by emotions; they are, but not by sentiments, and herein lies the difference.