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LATEST NEWS UPDATES | Policy paralysis fears haunt markets

Policy paralysis fears haunt markets

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published Published on Mar 7, 2012   modified Modified on Mar 7, 2012
-The Times of India

Fears that policy paralysis will continue after the Congress party's poor show in the Uttar Pradesh assembly elections unnerved investors, and the sensex lost 190 points on Tuesday to end the day at 17173, its worst close in six weeks. The trepidation in the markets also affected shares of a few Anil Ambani-promoted Reliance Group companies, even though they were actually expected to gain because of the group's proximity to the Samajwadi Party which got the majority mandate. Reliance Power closed 7.1% lower while Reliance Infrastructure closed 5.7% off, mainly on profit taking. 

With the Congress and its allies failing to make any mark in the state polls, Dalal Street investors now fear that the uncertainty in policy making at the Centre will continue. Investors also fear a repeat of the last Parliament session in December when not even a day's work was possible amid opposition's protests against the government's policies. 

Stocks of sugar companies as well as Jaypee group nosedived on Tuesday. The Jaypee group, promoted by the Gour family, was known to have been close to the previous BSP regime. However, the stocks of Sahara group, known to have a close rapport with the Samajwadi Party, were up with Sahara One Media and Sahara Housing Finance gaining 5% each. 

Overall, Tuesday's market also witnessed foreign fund selling, recording a net outflow of about Rs 240 crore. Institutional dealers said FII fund managers were keeping a close watch on the election results and saw the setback for the Congress in UP as a mandate against the way the government at the Centre is being run, including the slow reforms process. In addition, now that the polls are over, petro price hike could come in anytime - another dampener for the market. Some talk of a mid-term poll is also a big negative for the market. 

With so many negatives, the ruling coalition is expected to face the heat in the Budget session starting next week. "Congress will be under pressure in the coming Budget session. Some portions of the Budget will surely be rewritten after the loss in UP," said Arun Kejriwal, director, KRIS, an investment advisory firm. Domestic and foreign fund managers are also concerned that the setback in UP may also force the Congress to settle for a populist Budget, worsening the fiscal situation. Already the government's fiscal deficit, as of end January, was 105% of the Budget estimate for the current year. 

Among the sensex shares, Hindalco closed 5.8% lower at Rs 132, while Sterlite was down 5.4% at Rs 114 and Tata Steel lost 5.4% at Rs 426. The day's slide also left investors poorer by Rs 74,000 crore with BSE's market capitalization now at Rs 61.7 lakh crore. 

On Tuesday, trading was volatile with the sensex initially rising by over 300 points but then as the results started coming, the index dipped into the red. Among the sectors that led the slide were metal, power and capital goods. BSE's metal index fell 3.9%, power index was down 2.4% and capital goods index fell nearly 2%. To some extent, the day's slide was also impacted by weak global markets on the back of fresh fears about Greece and slowing growth in China. 

The Times of India, 7 March, 2012, http://timesofindia.indiatimes.com/business/india-business/Policy-paralysis-fears-haunt-markets/articleshow/12168436.cms


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