Union finance minister P Chidambaram said the economy is expected to grow 8.5% next year and 8.9% this year. So there is "no reason to allow the worries of western world to ovewhelm us, our economy is very strong," he reassured, adding that liquidity is not an issue.
Speaking about the drastic fall, the finance minister said "the fall does not impact long term markets" and "fundamentals are sound."
His advice to investors at this point of time is to stay calm.
He assured that corporate profits are high and corporate tax is at all-time high too. He doesn't feel the need to advise domestic institutions on any action, as the institutions are best judges of market valuation. "The crash does not impact long-term sentiment", he said and thar "enough liquidity will be provided".
The FM has ruled out the possibility of any foul-play.
Chidambaram said, “We had anticipated that the markets will open on a downward note and may hit even the circuit-breaker. My advice to investors is to stay calm. Economy will grow this year at close to 9% and even according to Dr Rangarajan’s Committee’s report, it will grow at 8.5% next year. Bankers have reported that investment is running very high, demand for credit is very high; several bankers have stated that the investment in the pipeline is very strong, the fundamentals are very sound, corporate profits are high, corporates income tax is at all time high in terms of growth. There is no reason at all to allow the worries of the western world to overwhelm us.”
He added that the Indian economy is very different from the economies of some developed countries. Our economy is a strong economy, our corporate sector is very strong and I think when the market opens at 10:55am, investors would come back to the markets and investors will stay calm and allow this wind to blow over, “ he said.
The FM is not advising any institution anything at the moment, he said. He added, “I think all advisers, all analysts yesterday and today have advised investors to stay calm and stay invested. I am sure that investors will take informed and mature decision; as we have said in the statement yesterday, not give any room for unwarranted apprehensions or to market rumours.”
Chidambaram does not think the long-term market sentiment will be affected by the current happenings. “If the economy will grow this year at 8.9% and is expected to grow at 8.5% next year, the market sentiment must be an extremely positive sentiment - why should there be any negative sentiment at all,” he argued.
He is not worried about the liquidity situation in the markets. He said, “I am assured by the Reserve Bank as well as all the banks that enough liquidity has been provided and enough liquidity will be provided to brokers and other market players; liquidity will not be an issue.”
As Dalal Street turned red, the mood in the Finance Ministry got more somber. After the PM’s call for calm on Monday, the Finance Minister reassured investors about the strength of the economy. CNBC-TV18’s Abhijit Neogy says it is the loss of the "feel good factor" that is pinching the government.
A fall was anticipated, given the weak opening across Asia, but nobody expected that within five minutes of the markets opening, the Sensex would hit the 10% lower circuit. As a result, trading was halted for an hour. Meanwhile, in the capital, a concerned Finance Minister met the PM to take stock of the market situation.
In fact, the PM on Monday while addressing a joint press conference with British PM Gordon Brown had urged investors to stay calm.
“We want orderly growth in the Indian capital markets,” said Dr Manmohan Singh, Prime Minister.
But the Prime Minister’s reassurance could not compete with global market cues. In fact, sources say officials in the Finance Ministry's capital markets division were constantly monitoring every move in the market. As if on cue, the FM who did not comment on the bloodbath on Monday, came out at 10.35 am to try and ease badly frayed nerves.
“No, I do not think the long-term market sentiment will be affected. The fundamentals of the economy are intact. But my advice to the investors would be to exercise caution. When the markets open at 10.55, there will be a new beginning,” said P Chidambaram, Finance Minister.
While the markets did recover, it was not quite the new beginning the FM had hoped for. As the markets continued to fall, the opposition got into the act and former Finance Minister Yashwant Sinha blamed the fall on government inaction.
"This market has been in the grip of speculators for some months now. In fact, there has been excessive speculation in the markets," said Yashwant Sinha, Former Finance Minister.
While the opposition is keen to capitalise on the market capitulation, the Left parties do not seem particularly perturbed.
“The markets affect a small section of the population. We have been telling the government to check the source of fast money,” said D Raja, Leader, CPI.
Market experts say badly bruised investors will need more than government reassurance to enter troubled waters. Far away from Dalal Street, the market meltdown promises to heat things up in Davos as government and corporate leaders get together for the World Economic Forum.
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