The Telegraph
Since 1st March, 1999
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Rampaging bulls throw Left, govt apart

New Delhi, Sept. 17: The current stock market rally seems to have driven a new wedge between the central government and the Left parties.

While the Left is sniffing a scam in the bull run, finance minister P. Chidambaram refuses to lose sleep and is sure that “no scam was in the offing”.

In a letter written to Prime Minister Manmohan Singh, CPI leader Gurudas Dasgupta has sought immediate intervention of the government to stop state-run banks from participating in the current bull market. He has also sought probe into the movement of certain scrips that have reported huge increases in price-earnings ratios. “It’s a bubble which could burst any time unless pro-active steps to cool down the market are taken,” Dasgupta said.

Reacting to the Left worry, Chidambaram said, “There is no cause for alarm. It is completely wrong to say a scam is in the offing and I deny such reports.”

“As long as price-earnings ratios are in the comfort zone and corporate performance is good, I don’t think there is a cause to worry,” he said.

Chidambaram’s point was that the average P/E ratio still remained at 16.5 compared with P/E ratios of 30-40 when earlier scams had occurred.

While CPI has already written to Singh, the CPM is also keeping a close watch on the market trend and the issue had been discussed at internal meetings.

“This is a serious situation and we need to see why the stock market indices have been pushed up to such highs,” said Nilotpal Basu, CPM leader in the Rajya Sabha. Both Basu and Dasgupta have been members of joint parliamentary committees that had probed stock market scams in the past.

In his letter, Dasgupta said the bull run was based on “speculative gain playing on margin money without delivery. What gives rise to serious suspicion is that while the price-earnings ratio for a firm like ONGC is 9-10 and SAIL 3.6-4, the ratio for Dr Reddy's Lab is 67, Bharti Tele-ventures is above 122.”

“It appears that there is a deliberate speculative engineering to boost prices of selective shares,” Dasgupta argued in his letter.

While CPM also shares the same view, the two Left parties differ in one respect. CPM feels it’s the foreign institutional investors who are building up the bubble, but Dasgupta believes it is a local cartel ' “maybe some past scam masters” ' which is pulling strings from behind.

Dasgupta said funds from banks are being diverted in huge amount to feed the “unnatural” bull run.

The Left also feels that the government had failed to learn from past scams and Sebi, the market regulator, has been lax in finding out the causes for such scams. “I had pointed out the unnatural rise in early August on the floor of the house ... if I, an individual, can find the wrongdoing, why can't Sebi',” Dasgupta asked.

Chidambaram, however, said the government was keeping a close watch on the stock market to ensure it functioned in an orderly manner. The government has already looked into the exposure of public sector banks in equity and they appeared to be in order.

The minister said there were no signs of speculative bubble in the stock market even though it had risen substantially.

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