Indian stocks opened with a wide gap on Monday following rebounding trends in overseas markets but lost early gains by the end of trade, as local political concerns seem to weigh alongside the positive effect of an interest rate cut in US markets.
The Sensex opened 371 points higher and soon had gained 539 points from the previous close. While it was riding high on liquidity, its eventual gains were just 2 per cent, below what other Asian markets did. The index closed at 14,427.55.
“But for the political trouble at the Centre we would have gained 4 to 5 per cent today in line with some of the Asian markets” said MAA Annamalai, Akshaya & Co.
‘There is definitely a fear of fall of government, but we believe the Communist governments in Kerala and West Bengal would be considerably weakened if it happens and so they may not bring down the UPA government,” said Ramesh Patel, member, BSE. “What do union leaders by nature do? They negotiate and that is what Left front would do,” said another senior market analyst.
Political uncertainties have historically resulted in market volatility and two of the steepest falls in BSE Sensex have been associated with falling governments. The Sensex crashed 8.3 per cent the day Congress led by Sitaram Kesri pulled down the nine-month old United Front government headed by H D Deve Gowda on March 31, 1997. It remains the third biggest fall till date in percentage terms. In April 1999, the Sensex fell 6. 9 per cent as Atal Behari Vajpayee’s government lost a confidence vote in Lok Sabha.
“The pullback on Monday is purely technical after two sharp falls and the political problem was not at the back of its mind,” said Arun Kejriwal, Kris Research.
“Politics is no more a heavyweight factor governing the markets with liberalisation and increased global linkages”, said Patel. There is the growing feeling that policy decisions would not get reversed even if governments change.
However, the second highest fall in Sensex, 11 per cent on May 17, 2004 was caused by a comment from a Communist leader, member of ruling UPA coalition that the government should scrap the disinvestment ministry, indicating an end to the privatisation process. Trading was suspended twice that day on BSE and only after an assurance from Prime Minister Manmohan Singh, did the market stabilise.