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Stock market tanks post Indian budget – is it really the budget?

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Chidambaram announced the Indian 2007 budget last week amidst a lot of pomp and flourish. It dissapointed many and to the best of my knowledge, its not his best budget presented.

The aftermath of this budget was felt almost immediately on the stock market which fell by over 1000 points over the last few days for myriad reasons including fear of a global slowdown and a predicted US recession (I remember that I have not yet done my promised analysis on the factors that make people to believe that there is an impending recession on the horizon!)

This leads me to another aspect often discussed but not given the importance it deserves. Is the herd mentality really that enticing that the stock market just tanks because a select few decided to sell? What is it that affects such behavior? Alan Greenspan had once remarked about the bubble and the much famously quoted phrase “Irrational exuberance”. In recent days, I tried finding answers to this. I read up books on the stock market. A good one I read is written by a Princeton professor called “Random walk down Wall Street” by Burton Malkiel.

This really puts most of my questions to rest and helped soothe my nerves about this behavior of the mob mentality.

Its common heresay that mob mentality is difficult to contend with and the ability of the tough to get going when its tough is what separates them from the rest of the mob. The adage “When its tough, the tough get going” is truly apt.

http://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

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Written by Naveen Athresh

March 5, 2007 at 2:22 pm

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