Govt policies & market behaviour

Strangely, despite markets becoming freer, governments continue to retain and have, through their actions, a high degree of influence over them. Last week, markets were awaiting, with trepidation, the hike by the US Federal Reserve of its interest rates. Had it been more than the 0.25% it transpired to be, markets would have slid globally. In the event, the BSE sensex rose, with a consistency Ganguly could only salivate over, to end the week at 6,388, up 234 points (3.6%) over the week.
We have seen how government policy, or absence thereof, can make or mar businesses.Years after administered pricing for petroleum products was dismantled, and oil companies were ostensibly free to price their products freely, they continue to be regulated by government. Bowing to pressures from the Left parties, prices of petroleum products have not risen in line with crude oil prices and the PSU refineries are financially haemorrhaging. It is quite likely that some may declare a loss in the fourth quarter.
Similarly, the tax on cash withdrawals of funds on which taxes have been paid is a bad idea. It is ostensibly to curb proliferation of black money. Yet nothing is done when transactions of such nature are caught on camera. The solution is simple, if one is looking for solutions. Make it mandatory for the recipient to issue a receipt for cash money, in which he can state he is accepting it as a party donation. Since politicians would abhor such a proposition, tax on withdrawals of legitimate money is imposed.
Sometimes government action which is a drawback for some, can present an opportunity for others. The Purnendu Chatterjee group has seized just such an opportunity, to acquire, through a leveraged buy out in which it borrowed some 3 billion euro of the 4.4 billion acquisition price, Basell Polyolefins, from Royal Dutch Shell/BASF. Apparently, US law makers banned this firm from supplying to Iran’s National Petrochemicals. If owned by non US interests, National Petrochemicals was willing to buy. ONGC Videsh is also pursuing acquisition of oil equity, to secure our energy needs, in countries where US geopolitical interests don’t allow their companies to venture.