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The Big Bang

It was a historic week at the bourses as the markets reacted sharply to the long-drawn political drama unfolding in the country.

Last week was the most eventful weeks in the recent memory for the Indian stock markets as well as Indian politics. Following an election result that surprised everyone, a long-drawn political drama descended on the country. The markets gyrated to every scene of this drama. Over the week, the BSE Sensex was down 2.14 per cent (or 108 points) to close on 4961. The S&P CNX Nifty fell 1.4 per cent to close on 1560. The broader indices fell sharply on Monday but recovered later in the week to close almost flat. The S&P CNX 500 fell 0.6 per cent and the CNX Midcap 200 declined marginally by 0.13 per cent.

The combined average turnover for the week fell 14 per cent to Rs 6,858 crore. Foreign institutional investors continued to move their funds out of the market, being net sellers at Rs 961 crore. In April, they had been net buyers to the tune of Rs 7,638 crore but they moved out more than Rs 3,000 crore so far in May. Mutual funds tapped the buying opportunity in the markets and were net buyers to the tune of Rs 326 crore till Thursday.

An unprecedented election victory for the Congress and Left parties came as a bolt from the blue, but there were more surprises in store. The leader of the Congress coalition, Sonia Gandhi refused to don the mantle of the PM, a first in perhaps any democracy, and nominated Manmohan Singh as the new leader of the coalition and would-be Prime Minister. Amidst all this uncertainty, the markets turned extremely volatile.

There was absolute mayhem and madness on the bourses on Monday. The markets tumbled as the Leftists grumbled about PSU divestment and economic reforms. The Sensex fell a whopping 11.1 per cent to close at 4505, down 565 points, after recording the biggest intra-day fall of 842 points in its 129-year old history. The stock market staged a smart recovery amid high political drama on Tuesday as market sentiment received a major boost after Sonia Gandhi's refusal to become the PM and hopes that the 'original reformer' Manmohan Singh would be the next PM. The Sensex recorded its second-biggest rise of 8.3 per cent or 372 points to close at 4877.

After two days of extraordinary volatility, the markets remained cautiously optimistic for the rest of the week. Sensing the return of Manmohanomics, the relief rally continued and the Sensex ended the week at 4961, down 2.14 per cent from last week.

Among the sectoral indices, the BSE PSU Index recovered smartly after black Monday to end the week with a marginal gain of 0.83 per cent. The BSE Banking Index also registered a marginal gain of 1.56 per cent over the week on account of value buying. The BSE FMCG Index fell 1.4 per cent while the BSE Healthcare Index fell 1.1 per cent. Technology shares also lost heavily during Monday's free fall but recovered later in the week as the BSE IT Index fell 2 per cent over the week.

The global indices also remained volatile with mounting oil prices and concerns about a hard landing for the overheating Chinese economy. The Dow Jones declined 0.46 per cent to close at 9967 while the NASDAQ rose marginally by 0.4 per cent to close at 1912.

Outlook
Despite the Left parties having curtailed their rhetoric over PSU divestment and Manmohan Singh assuring the markets that economic reforms will continue unabated, the markets are likely to remain range-bound till the composition and economic priorities of the new government are clearly spelt out.