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What Sense? Nonsense!

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DQI Bureau
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US Federal Reserve chairman Alan Greenspan recently shocked the financial

world and became the butt of much ridicule when he took the podium at a seminar

of senior economists. Addressing the packed hall, Greenspan admitted that he had

no clue why stock markets had moved the way they had in recent times. Even

before the cackle in the hall had died down, he threw in the clincher–that he

had no forecasts for the future, since he hadn’t a clue which way markets

would move. The cackle died abruptly, as if cut by a knife, when everyone

realized he was dead-serious.

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‘Even

before the cackle in the hall had died down, Greenspan threw in the

clincher–he wasn’t joking at all, he was dead serious"
RAJEEV NARAYAN



The author is the Executive Editor of Dataquest

Forget the anecdote. Greenspan’s statement was strong–and a brave one–coming

as it did from the man who oversees functioning of what is the most mature and

rock-solid financial market in the world. Remember, ’tis the stock markets in

the United States–and therefore the ready access to funds–that have seen

that country attain the superpower status that it enjoys today.

And clearly, that’s the order of the day, today. Look at the Indian stock

market–across the great seas and on the other side of the war zone. All

indices have been experiencing a ride akin to that in the United States, though

the fundamentals and economic situation are diametrically different. When

technology companies began announcing their financial results last week–and

their performance wasn’t all that bad, mind you–the market lost its grip on

reality, cocked a snook at fundamentals, thumbed its nose at future guidance,

and crashed... And what a crash–stocks of the strongest Indian IT companies

slipped to 52-week lows, with ten companies witnessing an erosion in market

price by 10% or more! Mastek and Infosys Technologies were the worst hit, losing

38% and 17% of their market value, respectively.

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Ask anyone at the stock exchanges the reason for this sudden loss of faith in

IT scrips. There common refrain was–"Duh! Don’t know... Wanted to get

out before ’twas too late."

Too late? Too late for what... for better sense to prevail? That,

inexplicably, has always been the reason for market rout. Unless punters got

together and laid the ground for some cool profit-taking...

The bloodbath, and its fallout



The slide began soon after Infosys announced its results–minutes later,

the Sensex was down 50.43 points. As for the Nifty, it lost 18.95 points with

similar haste. To find out what had caused the fire, Dataquest dialled in five

top IT CEOs. "There’s nothing to worry about–this is because of the war

in Iraq," said the first. "Infosys’ results are the reason"–the

second. "High performance expectations got belied and that caused the

crash"–the third. "The geo-political situation is not too good in

the Asian region"–the fourth. The fifth blamed his own company, which had

"underperformed".

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All ascribed different reasons for the crash... But all believed the market

would bounce back soon.

The Sensex will rebound, and lost ground will be won back. However, that

rally will last only till the next shock wave... and that will be the norm till

those that man the markets learn to disregard sentiment and look instead at

fundamentals. And things will turn only when the market watchdog ensures that

punters don’t play mindgames with people at large. Of course, it would help if

the watchdog were given some teeth–and the courage–to bite when it has to...

Rajeev Narayan



The author is executive editor of Dataquest

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