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Mayhem in Markets

The dramatic result of the 13th Lok Sabha elections and the incoming government's views on disinvestment shook the markets. PSU and banking stocks were hit severely.

The ruling BJP led coalition suffered a major setback as Congress and its allies were voted back to power, putting to rest fears of an indecisive verdict. The Congress emerged as the single largest party and the Left parties registered their best performance in the history of Lok Sabha elections.

This outcome was not expected by the market, which preferred the NDA-led government to rise to power. As the winners started making statements on their economic policies, the markets got nervous. The incoming parties said they could hold back economic reforms and not sell profitable PSUs. This prompted heavy selling in the market.

Over the week, the BSE Sensex plummeted 10.6 per cent (or 600 points) to 5070 on account of all-round selling. The S&P CNX Nifty nosedived 12.3 per cent to close at 1582 points. The broader indices didn't fare any better either. Adding to the woes, the S&P CNX 500 declined 14 per cent and the CNX Midcap 200 closely followed with an 11.4 per cent decline.

The combined average turnover rose 22 per cent to Rs 7981 crore. The advance-decline ratio was less than 1 for this week. FIIs moved their funds out of the market, being net sellers at Rs 2066 crore. Mutual funds showed a lot of interest in the market, turning net buyers at Rs 594 crore till Thursday.

The markets opened down on Monday at the back of the last exit polls pointing towards the possibility of a hung parliament. The Sensex fell 114 points to 5556. The defeat suffered by Andhra Pradesh Chief Minister Chandrababu Naidu in the assembly elections added to the feeling of gloom and doom, with the Sensex shedding 230 points on Tuesday at 5326. After two consecutive days of heavy losses, optimism took over once and the markets recovered slightly with a 32 points gain on Wednesday to 5358, ahead of the announcement of election results on Thursday. The unexpected victory of the Congress alliance failed to make much negative impact that day though stocks remained hugely volatile. The Sensex registered a 41 points gain to 5399, despite the surprising outcome of the elections. These gains were shortlived, as the Sensex witnessed a historic fall, spiralling down a whopping 330 points to 5070 on Friday, triggered by the statements of the Left parties. PSU and banking stocks were trashed.

In sectoral indices, the BSE PSU Index plunged a record 22 per cent on the possible negative fallout of the public sector disinvestment programme due to a change in government at the centre. The BSE Banking Index registered a 17 per cent decline as banking shares also tumbled on worries that banking sector reforms would be hit as the new government may not like to dilute its stake in PSU banks. The BSE FMCG Index fell 6.4 per cent while the BSE Healthcare Index dropped 5.8 per cent on account of all-round selling. Biocon posted strong earnings growth in 2003-04, which didn't have an impact on the Healthcare Index. Technology shares stayed firm with BSE IT Index narrowly escaping the free fall, and losing only 3 per cent.

In global indices, NASDAQ declined 0.7 per cent to close at 1904, while the Dow Jones dropped a per cent at 10,013, on account of higher oil prices.

Amidst uncertainty over the new government's economic policies, the markets are likely to remain jittery till the new government takes charge. All eyes are set on the Common Minimum Programme from the new government. FIIs are likely to remain cautious until there is more clarity on the new government's economic reforms policies. Till then, expect the markets to see-saw.