Tuesday the 30th of July would see RBI Governor Subbarao announce the mid-quarter review. The meeting is expected to be a non-event simply because enough has happened in the last fortnight to warrant any further action at the review. The humble Indian Rupee which had crossed the 61 mark is now hovering close to 59 but only after massive intervention by RBI. Liquidity has been tightened and interest rates have hardened. So much has been the effect on bond yields that liquid funds have turned negative and faced huge redemption pressure in recent weeks. Domestic institutions who have been buyers of debt on a regular basis have been net sellers and sold over Rs 24,000 crs of debt in the last six trading sessions. The selling pressure has been so intense thatdomestic institutions have turned net sellers in July, something that has not happened in the last 12 months or maybe even longer.

With the review meet expected to be a non-event what could be important is the tone of what RBI says. The economy seems to be going nowhere and GDP, IIP numbers are not giving any comfort whatsoever. The so called “green shoots” which are a supposed to be a silver lining are just not visible no matter how optimist one is. To top it we have a stubborn inflation which refuses to go down and is causing undue hardship. The final straw on the camel’s back is the fact that elections are round the corner and we have the Food Security Act which has already been promulgated as an ordinance set to be debated. One understands the predicament of the government in the ordinance and the difficulties to get it cleared in a session lasting under 3 weeks. Let’s hope that the session sees some productive work and does not turn out to be a mere whitewash as this is most likely to be the last session of the present house before elections are called. I believe irrespective of whether the food security bill is passed or defeated the present government would go to town claiming to be the saviour or the martyr for the masses. Heaven help us.

SEBI has been given wide reaching powers including search and seizure. The watchdog is now empowered to virtually snoop into your place of work and stay and watch over you in your day to day activities. One hopes that the wide powers are used judiciously and used in making the capital markets a cleaner and safer place. There is hardly any indictment in insider trading till date worth talking about and one hopes that with these powers we would find that there is atleast one high profile insider trading case brought to its logical end.

While on the subject of SEBI, the minimum public holding norm has seen lot of action happening. MNC Procter and Gamble and Gillette cases are almost resolved after hectic debates and the matter going upto the tribunal. One wonders when the case of Gokaldas Exports would get resolved on which basis the above two companies had made their representation. It may be mentioned for the benefit of readers here that the original promoters of Gokaldas Exports, the Hindujas holding was declassified as non-promoter thus the company became compliant with the minimum promoter holding norm.

In yet another case involving a PSU on the same issue, SEBI has given an excellent solution where it has allowed the state run institutions to qualify as QIB’s (qualified institutional bidders). The case being referred to is Neyveli Lignite Corporation Limited. The government of India needs to sell shares to reach the minimum public shareholding norm. SEBI has allowed the Tamil-Nadu state corporations to bid for these shares in the offer/placement and allowed them exemptions on quantity that they could bid for. While the exemption is good, one hopes this does not become a norm going forward.

One last point on SEBI is about MMTC. The OFS from MMTC was made at a floor price of Rs 60 when the last traded price on the eve of the offer was at Rs 211.45. The share hit the lower circuit for 26 sessions continuously before trading began. When the OFS was made at a steep discount why could the regulator post the offer for sale not have a special price discovery session for the stock as is done in the case of relisting of shares or the first day listing of an IPO. There would be a fresh price discovery and normal trading would happen. There are some more OFS’s likely to happen and one hopes that the above experience would be used to implement the suggestion in future.

Coming to the markets one is really intrigued by the current market valuations. On the one hand we have an economy which is faltering, struggling and on the other hand the benchmark indices like the SENSEX and NIFTY were till last week at roughly 24-30 months high. The Midcap and Small-cap indices are in a different league and are significantly down from their year’s opening level. The Bank indices which are supposed to indicate the health of the banking sector and thus the economy have lost about 16% in the current year, confirming the above assumptions that the economy is going nowhere. In such a scenario it would not be assuming much if one were to say that the benchmark indices are the handiwork of “INDEX MANGEMENT” and it would be difficult to gauge the true value of the current state of the economy.

One closing remark which is meant for my retail brethren, the markets are in a tough time and these times may last for a few more months at the bare minimum. Brace yourself for the tough times ahead and invest in companies which have weathered this storm and have a track record. Do not get carried away by either the “INDICES” or the present price against the historical highs.

Invest cautiously and judiciously.