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`Booming Sensex reflects buoyant economy'

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`As long as price earning ratio is within limits, we should not get worried about the movement of index'.

New Delhi , Dec. 2

THE Union Finance Minister, Mr P. Chidambaram, on Friday said in the Lok Sabha that the rising movement of the stock market index reflects the buoyancy and confidence in the economy even as the market regulator and the Finance Ministry keep strict vigil over any market manipulations.

Responding to a spate of supplementary on the main question by Mr Rwati Raman Singh (SP) whether the market spurt of stock index bears any correlation with the fundamentals of the economy, Mr Chidambaram said that "as long as the movement of the stock index and other indices of the markets are absolutely orderly there is nothing to worry. As long as price earning ratio is within limits, we should not get worried about the movement of index".

He said the market regulator, Securities and Exchange Board of India (SEBI), is not expected to intervene in the market when an index crosses any particular level. However, it keeps a constant vigil on the market.

SEBI has put in place a plethora of measures as a part of its surveillance activities. They include, shifting of several scrips to trade-to-trade segment to discourage day trading and speculation and imposition of circuit filters/price bands on several scrip. It has also advised bourses to expedite demonstrative action wherever warranted to safeguard investors' interests and to ensure orderly functioning of the stock market.

Mr Chidambaram said movement of stock indices also depends on various domestic and international events, market sentiments, corporate performance and likely economic growth in future, including the fundamentals of the economy.

In this regard, he said there are some good news in that the gross domestic product growth released for the first half of the current fiscal is estimated at 8.1 per cent and the business confidence and investor confidence is high and how far this is sustained in the rest of the year will impact on the index. He said different sectors of the economy are doing well. "I expect the Sensex to rise," he said.

When the CPI leader, Mr Gurudas Dasgupta, pointed out external factors for sustained rally in stock markets to reap speculative profits, the Minister quipped, "The underlying basis of capital market is speculation. When there is manipulation, we will intervene decisively."

He, however, had a word of caution for small investors while investing in the stock markets. "Unless you have technical knowledge to analyse scrips, you should be cautious. Or try to invest in the mutual funds."

He attributed the waning interest of small investors in stock markets to the periodic scams and the biggest setback was the near collapse of the Unit Trust of India. "I think the government of the day took a number of steps to improve their confidence. My impression is that mutual funds are quite active in the market, meaning the small investors are putting their money in the mutual funds".

Related Stories:
Not a cause for worry: Chidambaram
Sensex bounces back with 134-pt gain

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