President Pranab Mukherjee is a veteran Congress politician and has presented the last four budgets. His favourite authority to quote has been Kautilya, the great Indian pioneer of economics and politics who was prime minister in the court of King Chandragupta Maurya in the fourth century BC. Mukherjee quoted Kautilya in his first budget speech in 1984 and as recently as in 2010.

Thus, a wise Collector General shall conduct the work of revenue collection ... in a manner that production and consumption should not be injuriously affected ... financial prosperity depends on public prosperity, abundance of harvest and prosperity of commerce among other things

He invoked Lord Indra, the Hindu rain god, and prayed to the goddess of wealth Lakshmi in 2011:

While, like last year, I seek the blessings of Lord Indra to bestow on us timely and bountiful monsoons, I would pray to Goddess Lakshmi as well. I think it is a good strategy to diversify one's risks

In his last stint as finance minister in 2012, Mukherjee quoted Hamlet:

I must be cruel only to be kind

Perhaps the best way to explain that is to take a line popularised by Mary Poppins: “When everything goes well with the economy, we all share in the joy. However, when things go wrong, it is the finance minister who is called upon to administer the medicine.” In other words, the finance minister's job is to tell you that there's no spoonful of sugar.

Finance Minister P. Chidambaram likes to quote from ancient Indian texts, his favourite being the weaver-philosopher Tiruvalluvar who lived in his state of Tamil Nadu some 2,000 years ago. Chidambaram said in 2007:

Mr. Speaker, Sir, I have devoted the last 15 minutes or so to agriculture. There is no dearth of schemes; there is no dearth of funds. What needs to be done is to deliver the intended outcomes. Saint Tiruvalluvar watches over us and warns: Uzhavinar kai madangin illai vizhaivathoom vittame enbarkum nilai (If ploughmen keep their hands folded, even sages claiming renunciation cannot find salvation)

Here's another from 2008:

As always, I turned to my muse, Saint Tiruvalluvar, for guidance and reassurance. 2,000 years ago he set the benchmark for good governance in the following immortal words: Kodai ali esngol kudi ombal nangum, Udaiyanam vendharkku oli. (Generous grants, compassion, righteous rule and succour to the downtrodden are the hallmarks of good governance)

Chidambaram did not limit himself to Tiruvalluvar, leaning adequately on Jawaharlal Nehru ("Everything else can wait, but not agriculture") and Henry David Thoreau ("If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.") to make a point or two.

Even the usually quiet Prime Minister Manmohan Singh is known to quote Urdu couplets on important occasions. In 1991, he reaffirmed his faith in a financially strained nation by invoking the poet Iqbal, who chose to live in Pakistan after the partition of India:

Yunaan-o-Misr-o-Roma, sab mitt gaye jahaan say/Ab tak magar hai baqi, naam-o-nishan hamara (Greece, Egypt, Rome have vanished all/But our name and sign live on)

Yashwant Sinha, finance minister in the first BJP-led government, announced measures for the film industry in true Bollywood style, using movie names in his budget of 2002:

It is time we brought about a fiscal regime to usher in more 'Khushi' (happiness) and take away the remaining 'Gham' (sadness) from the entertainment industry. 'Filhal' (for now) I shall have more to say on this in Part ‘B’ of my speech

 

Lalu Yadav, a lawmaker from Bihar, often leaves his audience laughing thanks to his rustic, jovial delivery. Here is a couplet, recited during his railway budget of 2008:

Everybody is appreciating that I have done a tremendous work; each and every year I have earned millions and millions every year. And they are saying ... I have ... uh ... Lalu Yadav has planted a fruit tree, and every year it is duty of mine to grow fruit tree

The poetic performance was punctured with unabashed laughter from other lawmakers.

In 2007, while presenting his railway budget, he compared himself to Lord Krishna – in all humility, of course.

Lord Krishna was acclaimed as Giridhar when in a moment of crisis he lifted Mount Govardhan on his finger. However, he did this with the supporting hands of thousands of his fellow villagers … though people are giving me the credit for the turnaround of the railways, with all humility I would like to share with the house that this miracle has been possible because of the tireless efforts of 1.4 million railway employees

Mamata Banerjee’s rail budget speeches were more akin to admonishments. In 2011, she said:

Madam, while railways deliver on their promises, they are not good at publicity. This House and the nation do not come to know of our achievements or what we are doing. Hum aah bhee karte hain toh ho jaate hain badnaam, Woh katl bhee karte hain toh charcha nahi hota'. (We earn a bad name even if we moan/but there is not even any mention if they commit a murder.)

She has been accused of favouring her state of West Bengal in the railway budgets and lawmakers have often objected during her speeches. At such times, she asks them to shut up and listen, and threatens them with funding cuts in their constituencies:

What is your name, the one who is shouting, what is your name? My pronunciation will get messed up if I shout so let me go slowly. I am also a human being … I can’t satisfy all of you

(Follow Shashank Chouhan on Twitter @shashankchouhan )

The countdown has begun for the biggest business and economic event of the year, the release of India's annual budget at the end of February, and Finance Minister P. Chidambaram has a tough job on his hands. With general elections a year away, he must please voters, boost growth and control deficits.

In the last five years, the finance minister has always relaxed income tax slabs -- by either increasing the basic exemption limit or widening the tax slabs. As far as markets go, the 2009 budget day was the worst for stocks as the index fell around 950 points during trade. However, the focus has always been on the government's fiscal deficit targets, which have hovered around the 5 percent mark in recent years.

As India's economy battles slowing growth, investors will take cues from Chidambaram's plans to rein in spending and boost growth. Here's a look at budgets between 2008 and 2012 -- the hits, the misses and how they affected the common man.

                                                                        2012

FINANCE MINISTER: Pranab Mukherjee

KEY HIGHLIGHTS

• India projects a decline in the fiscal deficit to 5.1 percent of GDP in 2012/13. GDP expected to grow at 7.6 percent.
• Controversial proposal to retrospectively tax cross-border transactions in which the underlying assets are located in India. The move amounts to a push to get foreign companies that have invested millions in India to pay more taxes. Or in India's words, it's supposed to fight "counter aggressive tax avoidance schemes".
• Service tax rate raised to 12 percent from 10 percent, double basic customs duty on gold.
• No change in corporate tax rates. Personal Taxation: minimum threshold of income not chargeable to tax increased to 200,000 rupees. The 30 percent tax slab applicable on income above 10,00,000 rupees.

RATING AGENCY REACTIONS

• Moody’s said: "mildly negative" for India's credit rating. India's budget lacks new solutions to address its fiscal constraints and is credit negative for the sovereign.
• Standard & Poor's said the budget was "mildly negative" for India's credit rating, noting that the timing remained uncertain for long-awaited reforms.

MARKET REACTION ON BUDGET DAY

• The BSE Sensex fell 210 points (1.2 percent) to close at 17,466 as the budget was seen as too modest for a corporate sector looking for more concessions. During trade, the index fell nearly 250 points.

                                                                          2011

FINANCE MINISTER: Pranab Mukherjee

KEY HIGHLIGHTS

• Social spending to rise by 17 percent in 2011/12, helping millions of Indians. Fiscal deficit seen at 4.6 percent of GDP in 2011/12.
• Spending on infrastructure increased by 23 percent.

• Service tax rate kept at 10 percent, but scope widened. Minimum Alternate Tax (MAT) raised to 18.5 percent from 18 percent.

• Personal income tax exemption limit raised to 180,000 rupees. Surcharge on domestic companies reduced to 5 percent.

RATING AGENCY REACTIONS

• Standard & Poor's said India's fiscal deficit target for 2011/12 may be bit difficult to attain given upside risks to oil subsidy and wage bill under the social employment programmes.

MARKET REACTION ON BUDGET DAY

• The BSE Sensex ended up 0.69 percent at 17,823.40 points after rising as much as 3.4 percent after the budget was unveiled.
  

2010

 FINANCE MINISTER: Pranab Mukherjee

 KEY HIGHLIGHTS

• India plans record levels of borrowing for 2010/11 and counts on big growth to help cut its fiscal deficit to 5.5 percent of GDP.
• Excise duty raised on petrol, diesel by 1 rupee per litre. Excise duty cuts on cement, cement products and large cars partially rolled back.
• Minimum alternate tax rate raised to 18 percent from 15 percent. Service tax rate kept unchanged at 10 percent.
• Corporate tax rate unchanged. Personal income tax slabs widened.

 RATING AGENCY REACTIONS

• Standard & Poor's: "We believe the steps announced could signal a turning point that reverses the recent deterioration in India's fiscal position."

MARKET REACTION ON BUDGET DAY

• The BSE Sensex rose as much as 2.6 percent after the budget before paring gains. The index ended with gains of 175.35 points (1.08 percent) at 16,429.55.

2009

FINANCE MINISTER: Pranab Mukherjee

KEY HIGHLIGHTS

• Plans outlined to speed infrastructure development and increase spending for farmers and the poor. Additional spending to push the fiscal deficit to a 16-year high of 6.8 percent of GDP, the finance minister said.
• Minimum Alternate Tax raised to 15 percent from 10 percent. Fringe benefit tax scrapped.
• Corporate tax rates unchanged. Personal income tax exemption for senior citizens increased by 15,000 rupees; raised by 10,000 rupees for others.

 RATING AGENCY REACTIONS

• Standard & Poor's said India's BBB-minus sovereign rating does not face any significant rating pressure despite a sharply higher fiscal deficit unveiled by the government.
• Fitch said that, given India's ever widening physical and social infrastructure deficit, the expectations that the budget for fiscal 2010 would provide a boost to the sector were very high.

MARKET REACTION ON BUDGET DAY

• After falling more than 950 points during trade, the BSE Sensex ended with an 870-point loss (5.8 percent) to close at 14,043.40. It was the index's biggest drop in six months.

* (The budget was presented on July 6. The interim budget was presented on Feb. 16, ahead of the 2009 elections)

2008

Finance Minister: P. Chidambaram

KEY HIGHLIGHTS

• Fiscal deficit for 2008-09 seen at 2.5 percent of GDP.  Ahead of the 2009 elections, the government proposed to waive 600 billion rupees of bank loans to farmers.
• The budget raised the short-term capital gains tax, when an investment is sold for profit before one year, to 15 percent from 10 percent.
  • Excise duty on pharmaceuticals sector cut to 8 percent; Duty on small and hybrid cars to be cut. Six percent duty on petrol and diesel abolished and replaced with specific duty of 1.35 rupees per litre.
  • Corporate tax rates unchanged. Income tax threshold raised to 150,000 rupees.

RATING AGENCY REACTIONS

• Standard & Poor's said the budget was largely in line with expectations but more work needed to be done for upgrading ratings.

• Fitch Ratings said India needs to do more for fiscal improvement to catch up with its peer group.

MARKET REACTION ON BUDGET DAY

• The BSE Sensex ended down 246 points(1.4 percent) at 17,578.72 after falling as much as 3.2 percent.

  (You can follow Aditya on Twitter @adityayk)

The Reserve Bank of India (RBI) on Tuesday cut the repo rate as well as the cash reserve ratio (CRR) by 25 basis points, or 0.25 percent. Here's a quick explanation of what that means. It will be obvious to some readers, but many people haven't studied economics and are unfamiliar with the terms.

The repo rate, which now stands at 7.75 percent, is the rate at which the central bank lends money to Indian banks. As the repo rate goes down, it gets cheaper for banks to borrow money. That makes it easier for people to borrow money at cheaper rates too. As more people borrow money, which ought to be the result of action like this, they'll spend more money. That's good for the Indian economy.

The CRR, meanwhile, is the amount of funds banks must keep with the RBI. The CRR is at 4 percent, which means for every 100 rupees, the bank keeps 4 rupees with the RBI in cash. The ratio indicates the policy stance of the bank and is used as a tool to manage liquidity, or the amount of money in the system. By changing this ratio, the central bank can control the amount of liquidity. Tuesday's cut would release 180 billion rupees (or about $3.35 billion) into the system, meaning banks would have more money to lend to borrowers.

Cutting the repo rate doesn't always cut lending rates, of course. Banks might worry that lower lending rates could hurt their profits. However, IDBI Bank cut its base rate after the RBI announcement, and the head of India’s top lender, State Bank of India, said banks likely will cut lending rates.

Why does the RBI need to do things like this? The central bank must keep inflation in check while stimulating growth. This is important to India, whose growth rate in recent years has slowed. That has led to questions about the country's prosperity, the future of its swelling ranks of middle-class citizens, and the possibility that years of economic success for the country and millions of its inhabitants might not last.

Avoiding higher inflation also is important. Data released earlier this month suggests that inflation is at a three-year low, which makes it easier for the RBI to cut rates.  Still, there is a fear it could rise again, especially after a rise in diesel prices. Other concerns include fiscal deficit and current account deficit. That's the reason that the RBI hinted further rate cuts would be conditional on the government's moves to control fiscal deficit. Hence, the RBI remains cautious about rate cuts going ahead. The Sensex fell more than 100 points on Tuesday because of this.

The next development to watch out for is the release of the annual budget on Feb. 28. As Andy Mukherjee notes at Reuters Breakingviews:

"Finance minister P. Chidambaram has promised fiscal consolidation and other reforms. If he avoids the temptation to indulge instead in vote-buying populist measures that increase the government's spending commitments, there may be hope not just of another rate cut, but of a recovery too."

(You can follow Aditya on Twitter @adityayk)

Bharti Infratel’s initial share sale will likely be India’s biggest in nearly two years and key for the country’s troubled telecom sector, which has been hit by regulatory flip-flops.

Price Band: 210 – 240 rupees/share

Issue opens, closes: Dec 11 – Dec 14

The share sale of the telecommunications tower unit of top Indian phone carrier Bharti Airtel Ltd will raise $825 million in the upper end of the price range. The sale comes amidst signs of a revival in the primary market with other smaller private offerings like CARE Ratings, PC Jewellers and Tara Jewels in the process of raising or having recently raised capital.

The sale will also be a test of bigger offerings as the government aims to raise roughly $1.2 billion by selling shares in miner NMDC Ltd, sources told Reuters.

Here’s what some brokerages are advising investors on the Bharti IPO:

Ambit Capital:
* Advises investors to avoid at current valuations. At 10-12x FY14 EV/EBITDA and 38-44x FY14 earnings, cites expensive valuations.
* Valuations are fair compared to global peers, but peers such as American Towers and Crown Castle enjoy superior economics.
* Revenue growth expected to slow down on a drop in tenancies, weak uptake in 3G/4G services.

Crisil:
* IPO grade of 4/5 indicating fundamentals are above average.
* Network expansion by India’s leading telcos – Bharti Airtel, Vodafone and Idea Cellular Ltd will work in Bharti Infratel’s favour as these top three telcos by revenue are its clients.
* Large-scale operations, first-mover advantage and pool sharing arrangement among the top three telcos have resulted in better-than-industry tenancy ratio for Bharti Infratel which is expected to improve further leading to high operating leverage and improvement in profitability.

Religare Institutional Research:
* Valuations at higher end of IPO band are not cheap given near-term growth outlook.
* A key risk is a potential leveraging of the balance sheet to expand inorganically internationally.
* Advises investors to apply at mid-lower end of price band.

Enam Securities:
* The expansion of services in relatively underpenetrated markets like Category B & C circles by telcos provides a significant opportunity to BIL.
* BIL and Indus have long-term master service agreements (MSAs) with tenant telcos, which generates stable cash flow in the form of tower rentals as well as provides revenue visibility for the company.
* Marquee investors like Compassvale (wholly owned subsidiary of Temasek), KKR Towers, Nomura will continue to hold major shares in BIL even post-IPO.

Angel Broking:
* Avoid IPO on premium valuations.
* Low asset turnover, minimal use of leverage in a capital intensive industry has resulted in low return on equity, or RoE, over past three years.
* The overcapacity in the industry is expected to limit the demand for rollout of new towers.
* Further, regulatory changes and the resultant uncertainty pose a risk to telecom players as their network rollout plans could be hampered.

(Compiled by Subhadip Sircar)

Goldman Sachs on Thursday upgraded Indian equities to ‘overweight’ from ‘market-weight’. The Wall Street investment bank has cited a recovery in growth and inflation moderation going ahead as reasons for its upgrade. It has set an end-2013 end target for the Nifty at 6,600 points, a 14 percent upside from current levels.

And there’s some more good news. Goldman said that economic growth is likely to accelerate to 6.5 percent in 2013 backed by favourable external sector demand outlook and a pick-up in domestic reforms.

All this is boosting sentiment on the street. The Sensex crossed 19,000 in trade on Thursday.

Goldman’s India upgrade comes a bit late in the day, as UBS, Deutsche Bank and JPMorgan have already raised their India equity targets in recent months. But Standard & Poor’s and Fitch still have a negative outlook on India.

However, the affirmations come after the initial euphoria of the mid-September reforms ebbed as graft allegations and the government’s weak fiscal situation again took centre stage.

The government has also been put on the mat by a determined opposition which has held the winter session of parliament hostage demanding a debate with a vote on the issue of allowing foreign entry in multi-brand retail.

The government has agreed to a debate with a vote, probably pointing towards the government’s desperation at getting parliament to function so that it can push through key legislation.

But it is tough to believe that the government has not done its calculation well. Though numbers will speak for themselves when voting happens, the government has said it is confident with votes, especially after DMK decided to support them.

The winter session has a heavy agenda with 25 bills pending for consideration and passing. Passage of key bills like pension, insurance, banking laws amendment is key to keeping investor confidence in India afloat.

Agreeing to a vote on foreign direct investment (FDI) in retail shows the government is serious. Whether it can carry the day will depend on its political skills going ahead.

The rally in the Indian stock markets, fuelled by the so-called reform announcements, seems to have fizzled out. Frontline indexes have retraced more than 60 percent of the gains made since Sep. 13, 2012, the day the reform measures were made public.

Stock market sentiment turned bullish after the reforms were announced, which typically followed Europe's unlimited bond-buying plan revealed a week earlier and coincided with the launch of QE3 in the United States.

However, subsequent developments such as the Reserve Bank of India’s (RBI) refusal to cut the repo rate citing persistently high inflation at its October policy review, slowing growth and worsening trade and fiscal deficits, have dented some of that exuberance.

Fiscal concerns seem to have staged a comeback. The 2G spectrum auctions fetched not even a fourth of the targeted amount (400 billion rupees) and the disinvestment process is yet to take off. The fiscal deficit for 2012-13 runs the risk of exceeding even the revised target of 5.3 percent of GDP. Also, despite a weaker rupee and slowing domestic growth, the trade deficit continued to expand, clocking a high of $21 billion in October. As a result, the rupee has slipped back to 55 plus levels.

Concerns over the “fiscal cliff” in the United States and renewed concerns on Greece have given rise to risk-off trade overseas, thereby affecting liquidity flows in India.

If we weed out the reform announcements for a moment, then the movement of the Indian stock markets from September onwards can be attributed to two factors -- the initial upside due to risk-on trade following QEs in Europe and the United States, and later the downside due to risk-off trade after concerns on the U.S. “fiscal cliff” and Greece.

The approaching “fiscal cliff” is a game of brinkmanship in which both parties will ultimately yield, but not before extracting their pound of flesh. This may lead to some anxiety in global investment markets, but the probability of this escalating into a full-blown crisis is low.

Fundamentally, corporate earnings growth seems to have bottomed out in the July-Sept 2012 quarter. Going ahead, earnings downgrades should give way to earnings upgrades. But recovery is likely to be slow. Present valuations, though not screamingly cheap, are not expensive either. At close to 14 times one-year forward EPS, the BSE Sensex is trading in the fair value range.

The most important factor, however, is global commodity prices. They seem to have ended the 15-year bull cycle and are headed for a deep correction. Lower commodity prices can be a boon for India, which imports almost 70-80 percent of its commodity requirements.

Add to that the subtle rate cut hints from the RBI in the Jan-March 2013 quarter and we may be headed for a much-needed reprieve. Technically, the markets seem to have completed a healthy correction to the previous rally and are at crucial support levels. Pessimism and disbelief seem to be rampant among investors as they have used this rally to book profits. The markets have a habit of doing exactly the opposite of what the masses want them to do.

The ongoing winter session in parliament is crucial as a number of important bills will come up for approval. Bills related to FDI in insurance and pension, Companies Bill (Amendment) and Land Acquisition Bill are some of the important ones that need to be passed for the recent upswing in sentiment to continue.

The opposition has plans to push for a vote on FDI in retail, whereas the government is trying its best not to let it happen. A lot will depend on how many reform bills are passed in this session. Will it be another wasted opportunity? Or will it finally herald the beginning of a new era? The near-term future of stock markets depends on that. We are keeping our fingers crossed.

Finance Minister P. Chidambaram is not the only one walking alone.

Duvvuri Subbarao, the Reserve Bank of India (RBI) chief, also seems to be on a solitary, and one hopes, contemplative walk.

It’s not just the government putting pressure on the central bank to act and cut rates.

Minutes of a RBI advisory panel on monetary policy released on Wednesday showed Subbarao went against the advice of most external members, including economists and academics, in deciding to keep rates on hold at the Oct. 30 meeting.

Five of the six external members present had suggested a cut in the repo rate, with two suggesting a chunky 50 basis point cut. The governor thought otherwise, opting to lower the cash reserve ratio by 25 basis points.

The members arguing for a cut said that demand side pressures were not evident and there was a need to revive investments.

However, Subbarao said restraining demand was essential as inflation was expected to rise over the next few months.

In India, deciding rates is the prerogative of the RBI governor unlike the formal voting mechanisms at some banks like the U.S. Federal Reserve and European Central Bank.

In an interview to the Wall Street Journal earlier this year, Subbarao had said that going against the panel’s view was not always an easy option.

“It’s difficult … It’s certainly something you don’t do lightheartedly. You do think twice before going against their advice.”

Yet, Subbarao has done that repeatedly. He raised rates sharply in the second half of 2011 citing inflationary pressures, when the panel had suggested gradual increases.

That reveals a side to him which many had not expected when the career bureaucrat switched from the helm at the finance ministry to Mint Street, where the central bank is headquartered.

It’s not been an easy ride of late. Chidambaram has been piling pressure on Subbarao to cut rates, even holding a hurriedly called press-conference a day before the Oct. 30 review to put forward a fiscal roadmap that lacked any details on how it would be achieved.

Subbarao was not swayed, prompting the finance minister to say, “if government has to walk alone to face the challenge of growth, well, we’ll walk alone.”

The RBI governor has taken a key risk with his decidedly tough stance on inflation, which by his own admission, involves sacrificing short-term growth.

The economy continues to sputter with declining private investment demand and weak external demand, raising shrill calls from the industry for rate cuts.

Sujan Hajra, chief economist at Anand Rathi Securities and a former central bank official, supports Subbarao.

“The perspective for the governor is much bigger. His decisions are pretty balanced,” he said.

“At this moment, a rate cut won’t have positive gain for the economy,” Hajra said.

And one must not forget the adage that the central banker’s job is taking away the punchbowl just as the party gets going.

Subbarao’s detractors may argue that the party looks far away.

As the end of 2012 approaches, investors will likely remember this as a bipolar year for Indian markets.

A look at the Sensex chart for the year captures perfectly the swings in investors’ mood: from an exuberant January all the way to the despair of June to radiant optimism in September.

Calibrations about the economy, interest rates, and the government’s ability to respond to these challenges have undoubtedly been the key themes of the year.

The wax and wane of sentiment has been a key factor behind the volatility, but another detail appears to have received little attention: the clear downward trend in trading volumes since the start of the year, no matter the mood of the month.

That comes even as foreign institutional investors (FIIs) have bought a net $18.7 billion in Indian stocks this year, showing it has not been near enough to offset what appears to be the reduced risk appetite of domestic investors.

Retail investors are exiting stock markets in droves, driving redemptions to a two-year high in September, which may help explain why domestic institutions turned net sellers in the July-September quarter, according to Morgan Stanley data.

The decline in volumes can’t bode well at a time when the government is keen to sell stakes in state-run companies to bridge its fiscal deficit, and as promoters are due to reduce their shareholdings by next year to meet SEBI requirements.

And it begins to look worse after the most recent Bank of America-Merrill Lynch fund manager survey showed sentiment among global fund managers hit an 11-month low in November.

Reduced foreign buying at a time when domestic investors are reluctant to buy is a potentially toxic combination.

The impact low volumes can have was in stark display when a misplaced basket of trade worth just over $125 million from Emkay Global sent Indian stocks sharply lower in October.

That may have been a one-off. But as investors begin to think ahead to the new year, one trend is getting clear: unless more people start investing into Indian stocks, the big swings in movements are bound to stay, making markets even more bipolar.

Consider this. India's gross domestic product has grown about 7 percent on an average per year for the past nine years. Its industrial growth has been steadily rising since then. Buoyed by economic growth, the country’s capital markets also offered itself as an attractive and inflation beating investment option.

That means that someone who invested at the end of 2002 in the BSE’s benchmark index, Sensex, would have made a 418 percent return on his portfolio by July 11 (just a random date). It sounds like the Madoff plan, but it’s not. The Sensex’s value on Dec 31, 2002 was 3377.28 which rose manifold to 17489.14 on July 11, 2012. Our market had its fair share of ups and downs, but it remained focused and depicted the country’s growth story.

However, that "someone" who made the 418 percent return most likely was not one of us. The average Indian investor has been satisfied with, and probably still wants, investments with a fixed return that comes from safer havens. According to the National Council of Applied Economic Research, Indians were called "wise savers but poor investors". The statement found its base in the statistics that its Indian household Investor Survey revealed.

According to the survey, only 10.74 percent of households were investors (up from 7.4 percent in 2001-2002) while 89 percent were either saving in fixed income or are still clinging to their savings accounts. About 46 percent of urban households preferred to save, compared to 21 percent who chose investing.

In 2002, this was not a bad idea. India's GDP grew at 3.7 percent that year compared with 2001. But in 2003, it jumped to 8.37 percent because of services (mostly financial, real estate and business services) and manufacturing sector which together drove this transition to a higher growth trajectory.

In the same year, the amount of foreign money entering India's capital markets rose sevenfold. Most of this came from foreign institutional investors, who poured in 304.6 billion rupees ($5.5 billion), compared to 36 billion rupees ($665 million) a year earlier. They bought the Indian growth story; why didn't we?

The Bombay Stock Exchange's benchmark 30-share Sensex index started an unprecedented rise on May 6, 2003, climbing almost 67 percent to 5003 points seven months later. That was a better performance than nearly any other investment option out there. What did the Indian individual investor do?

You wouldn't know because the Securities and Exchange Board of India's handbook of statistics has no information. And as per the NCAER survey, about 43 percent of investors prefer to invest through mutual funds rather than jumping into the open field all by themselves.

Over the years, mutual funds' assets under management in equity funds have grown immensely. It stands at $33 billion (assets in equity funds) as compared to measly $5.32 billion in March 2004.

The growth appears impressive. However, only 11 percent of the population is part of this smaller investor community. "Average" Indian investors might want to rethink their historical avoidance of stocks. Inflation (CPI) is 10.16 percent (May 2012) and rising, above the nine-year average of 6.98 percent.

In such a situation, saving will keep them safe … but will it keep them going?

It was an action-packed week for the markets but not for the reasons we had anticipated. Manmohan Singh’s government, which was expected to announce a string of policy action steps starting with a diesel price hike, failed to make any announcements which would have cheered markets.

Instead, it got busy firefighting to pacify the NCP, a sulking ally which was threatening to move out. As feared, policy paralysis along with other international worries on the euro zone and the monsoon deficit resulted in a breakdown from support levels. After touching a low of 5034, Nifty closed the week at 5100 -- a loss of about 2 pct.

Buying peace with the NCP seems to be at the price of policy reforms. The UPA has decided to set up a co-ordination committee to screen the proposed policy actions before presenting it to the cabinet. A number of proposed reforms could be a casualty as a result of this committee and those which go through could get delayed beyond expectation. Hence, we would be slipping back into hibernation. But then, when did we ever move out of it? It was just hope.

Monsoon rains continued to bother the markets and have failed to pick up. We still have about 20 pct deficit to the long-term average for the week ending July 25. Deficient rains in areas of west and north India would result in lower production of oil seeds, coarse pulses and sugarcane. It may not have a spiralling effect on food inflation, thanks to the bumper crop last year, but still the situation is worrisome. A government panel is expected to meet this week to take stock of the drought-like situation in various states.

World markets reacted positively to ECB President Mario Draghi’s assurance that he would take appropriate steps to protect the euro zone from falling apart. One should hope that this is not a mere statement but would be followed by action. This also helped the rupee to bounce back from lower levels to close at 55.24 versus the dollar, almost flat for the week. It is also expected that the ECB chief will discuss with German Bundesbank President Jens Weidmann the lowering of interest rates and increased bond buying, among other initiatives. This should act as a cushion for a while.

Market regulator SEBI hiked liquidity levels for F&O eligibility which resulted in about 51 scrips being removed from the list. Subsequent unwinding resulted in a number of them losing heavily thus exerting further pressure on markets. The lone exception was MTNL where there was short covering which saw the stock at a 3-month high of 30 rupees. The SEBI move also seemed to have resulted in margin calls for highly leveraged mid-cap stocks, some of them showing sharp cuts such as Pipavav Defence, Tulip Telecom, Parsvnath Developers, Everonn Education and Glodyne Technologies. High promoter pledges are like the Damocles sword but being active stocks they are speculators’ favourites.

The week was high on financial results which turned out to be a mixed bag. Raymonds, LIC Housing Finance, Ashok Leyland, Crompton Greaves, Jindal Steel & Power disappointed whereas Hindustan Unilever, ITC, ICICI Bank, Larsen & Toubro surprised on the positive side. Hindustan Unilever was a big surprise with a stunning show, resulting in the stock touching a lifetime high of 478 rupees before closing the week at 465 rupees. It’s time to exercise caution in the FMCG pack as they would be affected due to deficient monsoons and the current valuation doesn’t leave any room for disappointment.

Reliance Communications’ decision to put Flag Telecom IPO on hold pushed the stock to its lifetime low of 53 rupees. An investigation by the CBI indicating payoffs to the Maran family in the Aircel-Maxis deal resulted in two of their listed stocks -- SpiceJet and Sun TV -- losing about 15 billion rupees in market cap on Friday.

The Reserve Bank of India is expected to maintain status quo on July 31 when it announces its first quarter review. Continued inaction from the government and the fear of a drought-like situation would prompt the governor to maintain a hawkish stance. The Fed and ECB monetary policy meet next week and U.S. unemployment data for June, slated to be out on Friday, could be the international news flows to be watched.

The next few days will see the earnings season coming to a close with some important results such as Cipla, Jaiprakash Associates, GAIL and Bank of Baroda. The cement and auto dispatch numbers will be known mid-week which could have a negative effect on respective sectors as a slowdown is noticeable.

The Nifty seems to be having a support at 5000/5020 levels which may not be breached unless the world markets correct sharply. A move beyond 5200 seems difficult without concrete policy action which as of now seems remote, though not impossible.

The current state of affairs reminds me of Abraham Lincoln’s quote -- “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.”

We had seen the markets moving up sharply in the last 7-8 weeks based on the intent indicated by the UPA government. Presidential elections were to have flagged off the string of announcements and the failure to do so was the last straw. Going ahead, we do not expect investors to be swayed by the "intent" but act only on policy announcement. The big question is when? Till then, it is best to stay out and watch as all of us wouldn’t like to be fooled again.