In May, after the general elections propelled the United Progressive Alliance into power, the Indian stock markets reacted with undisguised glee
; the Sensex recorded its largest-ever single-day rally in percentage terms, rising 2,110 points. The sentiment was predicated, as so much is in economics, on expectations: The stock markets expected the UPA, now free of its Communist partnerships and even otherwise unhindered in Parliament, to push through market-friendly policies, and thus it reacted with optimism.
Another, similar milestone now looms on July 6, when Pranab Mukherjee presents the Budget in Parliament, and already the market seems to be girding its loins for another huge leap. Various sectoral indices have steadily risen over the last few weeks, and the markets seem to expect vast government spending that will revitalise economic growth, which has sagged from its heyday of 9% two years ago.
Some analysts worry that the market, in fact, may be expecting too much,and that the Budget may not be able to live up to those towering expectations.
In this podcast, we talk to two in-house Mint experts to gauge the Sensex-Budget relationship. Historically, how has the Sensex reacted to the Budget? What exactly does the Sensex expect this year? What, on the other side, are the challenges that the Finance Minister will face in living up to those expectations?
How does the economic concept of expectation even work in theory and in the real world? Our guests -- Niranjan Rajadhyaksha, Mint’s managing editor and author of the weekly Cafe Economics column; and Manas Chakravarty, Mint’s consulting editor and author of the Capital Account column -- answer these and other questions, and in the process shine a light on the beast we call the Sensex.