The BSE sensex rose 474 points over the week, ending at 17,600 and the Nifty added 116 to end at 5228.

Other than DLF, Q4 PAT growth was encouraging at Reliance Communication (47%), Hindalco 49%, HDFC 40% and Corporation Bank (73%). Some more results in the next two weeks of the larger companies could enthuse investors and take the sensex up perhaps another 1000. Between now and then would be a good time to get lighter, as the next move would in all likelihood be south.

The RBI did not raise interest rates because the interbank rate is closer to the reverse repo rate so an increase would not really help suck out liquidity. The RBI Governor sees GDP growing at 8.1% this year, with a 35% gross domestic savings rate and a 36% gross domestic capital formation.

Though PAT growth has been generally encouraging, margins are under pressure by increased interest cost. According to Multi Consult P Ltd, for the quarter ended march 2008, sales of 818 companies are up 22%; interest cost up 41% and profit after tax up only 17%. This quarter shows a combination of higher interest cost and the squeeze on margins.

One concern is that, in order to combat inflation, which will become a political hot potato as elections approach, interest rates would need to be raised, sacrificing a bit of growth in the process. In areas where consumers rely on borrowing (automobiles, consumer durables, housing) this could impact demand and squeeze margins. Inflation is already at 7.57%, too high for comfort. Computation of inflation does not include several items (such as rent) which are commonly used; probably so as to contain the wages of Government employees which are linked to the official computation.

Globally, the falling interest rate cycle could be coming to an end and if the US currency weakens further, may call for a rise in rates to stanch the fall. One of the factors that can lead to a further weakening would be if other oil producing countries follow the example of Iran, which has reportedly stopped quoting for its oil in $ and uses a mix of yen and euro. Were others to follow suit, the US $ could come under greater pressure.

In the telecom sector, introduction of mobile number portability is likely to take some more time. This is the only thing that would bring in true competition for customer retention and so improve service standards. There is enough competition for customer acquisition (witness the slashing by Bharti Airtel of long distance telephony rates and roaming charges) but none for customer retention. Customers are locked into a provider because the hassle of informing contacts (and thus of losing out on some) makes them suffer inadequate service.

The Supreme Court has determined that R Comm and Tata Teleservices, which provided mobility on their fixed line networks, would be liable to pay ADC (access deficit charges) to BSNL of Rs 400 crores and Rs 300 crores respectively. R Comm claims to have already provided it in its accounts, with no impact on future profit statements. BSNL, on its part, is taking TRAI (the regulatory authority) for having phased out ADC, as it continues to provide telecom services in unviable areas, for which the ADC levy was introduced.

The Government is expected to sell big blocks of stock in 3 companies held by SUUTI, the entity that was formed to take over the assets of US 64 when it collapsed. It will start with the 27% stake in Axis Bank which is expected to be sold to various institutional bidders and fetch over Rs 9000 crores. Then will come its holding in L&T and in ITC. ITC’s stake sale could well attract the attention of BAT, which has been trying to get majority control and, with it, management control, for a long time.

With tobacco consumption declining in developed countries, BAT, Philip Morris and others are trying hard to get into developing countries like China and India, where sales are rising yet and profits are enormous. The tobacco used by foreign brands, however, is different from the variety grown in India, and tobacco farmers would find the going tough should local brands which use the local variety be phased out.

The rally can thus continue for a week or two, spurred on by more corporate results which are encouraging. One ought to use it to get lighter. There are too many imponderables for comfort at these levels. Not least being the poor fiscal health of the country and the neglect of planning for the future. Goldman Sachs says India is the worst amongst the BRIC countries in its spend on education. If only political leaders were to concentrate their minds on such matters, of planning for the future, rather than, as they do, on whether cheer leaders are needed, or whether actors should stop smoking in movies or other inane matters, it would be very welcome.

Have you read the latest Honest Truth by Ajit Dayal?

J Mulraj is a stockmarket columnist and observer of long standing. His weekly column on stockmarkets has run for over 17 years. An MBA from IIM Kolkata, he has been a member of the BSE. He is now India Representative for Institutional Investor. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stockmarkets yet being a reader of his columns. His other interests include reading, both fiction and non fiction, bridge, snooker and chess.

Democracy, especially a multiparty democracy in a multicultural nation of over 1 b. people, involves making of gestures to appease vote banks. Our political leaders are masters at making gestures. Thus the Government, bowing to diktats from its Left coalition partners, refuses to raise prices of petrol, never mind the economic and environmental cost of doing so. (Car owners, it seems, are also proletariat now!). Instead of targeting subsidies to reach the deserving sections, by using technology (smart cards) that are now available, the Government gives blanket subsidies for LPG and diesel, which benefit non deserving people and ruin balance sheets of PSU oil marketing companies with minority shareholders. Simply gestures.

Commerce Minister Kamal Nath makes a gesture of creating over 100 m. jobs by incentivising exports, through tax sops, to increase from $ 145 b. to $ 200 b. Contrast this with what one company, Reliance Industries, has done at its Jamnagar facility where it is setting up the world’s largest refinery. It set up a craft training centre which provided training to, and later jobs for, thousands of carpenters, welders, electricians, plumbers, masons, etc. required for setting up the refinery.

As elections come closer the propensity to make more gestures, in order to curry favour with vote banks (even though Gujarat state elections reveal that voters have started caring more for performance than for platitudes), will increase. These will cost money, which the Government doesn’t have, despite a booming economy providing buoyant tax revenues (banks have not been provided promised subsidy for giving cheap agri loans). It will have to borrow money, driving up interest rates. Inflation has crept up to 7.4%, and rising, which will also result in higher interest rates, making debt relatively more attractive than equity. If the stock market does not start electrifying investors (and it seems very unlikely to) incremental saving will tend to go more towards safe interest bearing debt instruments.

The other reason for not getting too excited about chances of a mad bull disease striking Dalal Street, are global markets. Shareholder democracy was adopted by US corporations in mid 80s at a time when Japanese and German companies, using stakeholder democracy, were trouncing America. Seven of the top ten global banks were then Japanese, the Nikkei had hit stratospheric levels, NTT DComo was the worlds most valuable company and Sony had taken over Columbia Pictures. Shareholder capitalism concentrated on only one of four stakeholders viz. owners of capital, in the belief that the interests of others (labour, customers, suppliers) would fall in line. This has gone too far, resulting in subprime and credit crisis, as financial institutions lent recklessly in order to boost shareholder value, never mind the risks. The IMF feels that the loss could be close to $ 1 trillion. If so, it will be a few months before capital feels confident enough to invest in emerging markets again.

Last week the BSE sensex rallied 464 points to close at 15802. The major chunk of this rise came from Reliance Industries (RIL), which contributed 241 points, followed by BHEL with 48. The Nifty gained 130 points over the week to end at 4777.

RIL was buoyed by news that it may sell 10% of its D6 block in the KG gas basin, to an oil major like Shell or BP, and that gas output could be significantly higher than thus anticipated. Another reason is the intervention by the Government, which has reportedly asked the Bombay High Court to allow it to become a party to a dispute over pricing of gas between RIL (of Mukesh Ambani) and RNRL (of Anil Ambani), as per a shareholder agreement between the two. As a part (and larger) owner of the gas, the Government feels it has the right to intervene, since the gas would start flowing from June.