"We expect the Sensex to reach 5800-6000 before December" S.A. Narayan, Managing Director, Kotak Securities	"Our index target is 5500 by December" Andrew Holland, Executive Vice President, DSP Merrill Lynch

After a longish hiatus the bulls crawled out on Dalal Street last fortnight, but at the time of writing on August 9, the rally of 115 points between July 26 and August 9 was threatening to end as a false dawn. Only a few weeks ago, the good times appeared to be back, and one surefire beacon of the upbeat mood is the futures on the National Stock Exchange, quoting at a discount to the NSE Nifty for several months, now sitting pretty at a premium. Alas, though, spiralling crude oil prices and rising inflation are threatening to bring the party to a rude halt.

The good news, though, is that the negative sentiment that had built up post-elections has almost disappeared. Last fortnight's showers in most parts of the country have taken the edge off the fears of poor monsoons, and fears of foreign investors pulling out because of a falling rupee are also proving exaggerated. In fact, US pension funds giant CALpers gave the markets something to cheer about by pumping a few million dollars into Indian stocks, with the promise of much more.

"We maintain our official call of 6000 by March 2005" Abhay Aima, Country Head (Equities & Private Banking Group), HDFC Bank

The bulls may be back, but the question is, amidst a scenario in which oil prices have peaked, inflation is on the up, and interest rates are also promising to rise (see Shine's Off The Indian Diamond, page 20), do they have the legs to keep running?

But doubtless the biggest trigger for the recent run-up is the sustained growth in earnings, which announce loud and clear that the India growth story is intact. "With good corporate results continuing, we expect the Sensex to reach 5800-6000 before December," says S.A. Narayan, Managing Director, Kotak Securities. "With the monsoon worries receding we maintain our target of 5500 by December 2004," points out Andrew Holland, Executive Vice President, DSP Merrill Lynch. "As the overall India growth story is still continuing, we are maintaining our official call (of 6000 by March 2005)," adds Abhay Aima, Country Head (Equities & Private Banking Group), HDFC Bank.

-By Narendra Nathan

SECOND
Geneva Reaper
Commerce Minister Kamal Nath earns a modest victory at the WTO talks by safeguarding India's interest. So should you be celebrating?

Union Commerce Minister Kamal Nath: The battle has just begun

Just when everything seemed lost, multilateralism took a giant step forward at Geneva. On the very last day of negotiations-July 31, 2004-the 147 members of the World Trade Organisation (WTO) finally thrashed out an agreement on a new framework for global trade. The unfinished agenda of the November 2001 Doha ministerial round had run its course and once again the implementation is back on track.

No doubt the agreement signalled a victory for multilateral free trade after a year of stalled negotiations, following the breakdown of talks at the Cancun ministerial round in September 2003, and at the earlier one at Seattle in November 2001. For India, the victory was even sweeter.

After all, India, as part of the five key negotiating countries, is being widely credited with taking a tough stance on behalf of developing countries and persuading rich nations to end their export subsidies to farmers. Moreover, India managed to get three of the four contentious Singapore issues-relating to investment, competition policy and government procurement-dropped from the Doha agenda. The trade facilitation issue will now be the only contentious matter.

"I told the negotiators of the industrialised countries that India will block access to its agricultural markets if they did not end their subsidies,'' says Kamal Nath, Minister for Commerce and Industry. With subsidies totalling $310 billion (Rs 14,26,000 crore) every year in the developed countries and $100 billion (Rs 4,60,000 crore) in the US alone, there is no way the Indian and the developing-country farmer can compete in the global market. "On a farmer-to-farmer basis, yes, the Indian farmer can take on his American counterpart any time. But he cannot take on the US government,'' adds Nath.

So what did Nath and Co. do to gladden the hearts of the industry chambers and farming bodies, which came out in such strong support for the new framework? "We created a defence mechanism within the framework agreement itself for our farm sector.'' The strategy was to allow the government to continue to have its say in providing market access to India's vulnerable farm sector by introducing new provisions of Special Products (SP), a Special Safeguard Mechanism (SSM) and Special and Differential Treatment (S&D).

Under SP, for instance, the government can select an appropriate number of products as "sensitive products'', thereby exempting them from tariff reduction commitments of the WTO. That's a provision that should be adequate to protect India's interest in dairy and edible oil (which it has to import in huge quantities from time to time). Similarly, the SSM allows the government to take protective measures against any surge in agricultural imports.

Again, by introducing the concept of "proportionality''-the countries which get higher subsidies will have to reduce their tariffs at a faster rate-Nath has not only ensured that developing countries have to face lesser tariff reduction compared to the more developed countries, but also stuck to the original position that on no account should the quantum of subsidies provided to the farmers (10 per cent of the total agricultural produce) be reduced in the case of developed countries. Developed countries, meanwhile, will be forced to reduce-by 20 per cent in the first year-and finally eliminate domestic support to its own farmers.

India's other big success at Geneva was to prevent the setting up of a new blue box, which would have allowed the developed countries, especially the US, to transfer some of the trade-distorting subsidies to this box. In addition, India and the other developing countries would be able to pursue agricultural policies that are supportive of their development goals, poverty reduction strategies, food security and livelihood concerns.

So should Indians be popping open the champagne? Not yet, contends Professor Ramesh Chand of the Institute of Economic Growth. "Remember that it is only a framework agreement, not the final one. The hard negotiations will begin now.''

Chand also believes that instead of looking at ways to protect the domestic market, India should have asked for greater access for its agricultural produce to other markets. His reasoning: Since India is a net exporter of agricultural produce-it exported $3 billion (Rs 13,800 crore) worth of agricultural products last year-it should be looking for markets. And as far as protecting the livelihood of its farmers is concerned, there are enough provisions in the Uruguay Round itself. "The protectionist mindset needs to change.''

-By Ashish Gupta

Shine's Off The Indian Diamond
Erratic monsoons and peaking oil prices are banishing the feel-good factor into oblivion.

Politics of oil: Skyrocketing prices

The debate on whether or not India is shining may have died out, but on the ground if at all smatterings of the feel-good factor do exist, they won't be around on display for too long. Consider: The monsoons may have delivered in some parts of the country, but not uniformly all over, and droughts and floods are the inevitable fallout. Crude oil prices are hitting new highs with sickening monotony-$40.63 as of August 6-inflation has spiralled up to 7.51 per cent, and interest rates are poised to harden.

The erratic monsoon pattern is forcing economists to rejig their growth projections. "A 19 per cent shortfall in July rains will bring down the estimated growth rate of 6.2 per cent to 5.6 per cent in 2004-05," warns Subir Gokarn, Chief Economist at credit rating agency Crisil. That decline will come mainly from a negative 2.5 per cent growth in agriculture. Gokarn adds that the lower growth rate combined with increased spending on food-for-work programmes will only result in the fiscal deficit being pushed up from the estimated 4.3 per cent to 5 per cent of GDP.

Clearly, all these do not augur well for the UPA government, which is committed to giving rural India a new deal. Or for the farmers, who will have less produce and hence less money. India Inc. too, which is dependant on a bountiful harvest not only for raw materials, but also as a market for finished products, has its fingers crossed

As for the common man it will also mean a steep jump in the prices of coarse cereals-much more than in 2002-since the country no longer has the luxury of 60 million tonnes of surplus foodgrains. Today it is down to around 31 million tonnes. In 2003, prices of jowar, bajra and maize went up by as much as 20 per cent, 25.8 per cent and 10.4 per cent respectively, after the drought of 2002.

And if that was not enough, the unprecedented hike in petrol and diesel prices has already set off alarm bells among policy makers, consumers and uncertainty everywhere. India's oil imports alone have risen by as much as 45 per cent in the first quarter of this year compared to the first quarter last year. In April-June 2004, India had an import bill of $22 billion (Rs 1,01,200 crore), up 31 per cent compared to $17.1 billion (Rs 78,660 crore) a year ago. And that will only add to the expanding negative balance of trade position, which is almost touching $6 billion (Rs 27,600 crore).

Adding to the import-led inflation is the fact that the rupee is no longer appreciating against the dollar to soften the blow. It has depreciated by 3 per cent since the beginning of the current fiscal, after appreciating for nearly the whole of 2003. And with inflation already breaching the 6 per cent-mark, compared to 4.6 per cent at this time last year, prices can only rise.

The soft interest rate regime that lasted for nearly four years may soon become a thing of the past. A hardening of interest rates, even by a hundred basis points, can prove detrimental both to banks as well as the average consumers. Banks won't be able to reap the windfall from their investments in government securities. And consumers will of course find retail loans more expensive. Already HDFC Bank has raised home loans by 25 basis points (from 7.5 per cent to 7.75 per cent) and other banks are expected to follow suit. Feel-good anybody?

-Ashish Gupta

Q&A
"India's Well Established"

Having established its presence in India a year ago, market research firm Synovate is now expanding operations. BT's Priyanka Sangani met up with Synovate's APac region CEO Tim Balbirnie.

How do you view the Indian market at present?

India has a very well established research market. The skill base here is tremendous and it's one of the leading markets in Asia. There are a lot of buyers of market research in India.

Market research doesn't seem to be working well for most consumer goods companies.

That is because there is very little excitement in the sector at present as compared to durables, but the sector will bounce back soon.

What are your growth plans?

We want to increase our revenues from India using specialised research products. We are in the process of increasing our investment in technology and infrastructure. We recently introduced a new research technology,
CATI (Computer Aided Telephone Interview), which speeds up the research data collection process.