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Markets to reel under selling pressure till political uncertainty ends Obviously, the Reserve Bank of...
Markets to reel under selling pressure till political uncertainty ends Obviously, the Reserve Bank of India disappointed corporates and markets alike with the repo rate cut of measly 25 basis points at the last week's mid-term monetary policy review. But interestingly it was not the reason why the markets went into a tailspin. Even as the apex bank was announcing its rate cut decision on Tuesday morning in Mumbai, the nation's as well as that of the markets' attention shifted to Chennai where the DMK supremo M Karunanidhi announced his party's decision to part ways with the UPA dispensation. This unexpected political development heightened tension among market players and consequently bourses plunged swiftly as survival of the Congress-led coalition government was stake with the departure of its nine-year-old trusted ally. Therefore, there was no trace of positive impact left on by the small quantum of rate cut. On Monday, the first day of the week, markets extended their losing streak on fears that a meagre 25 bps rate cut would do no good to the economy which continued to remain sluggish. And the Tuesday's political upheavel has added further agony because with government in minority, either there will be early elections or the economic reforms will suffer. Either way, the stock markets will stand to lose. Stunned by the DMK's withdrawal, Congress leaders and influential ministers managed to secure outside support from BSP chief Mayawati and her archrival Mulayam Singh Yadav, both known for their notoriety and selfishness. A But the stock markets did not take positive cues from this development because these two politicians are also known to ask for pound of flesh from the government in lieu of their support. The market men feared that these two politicians would demand huge funds for their state and also for the people who stand with them, at the cost of the exchequer and thereby imbalance the budget estimates. A few market operators also feared an early election. As a result, they suffered a huge loss last week. The major stock market indices, the 30-scrips based Sensex and the 50 scrips based Nifty plunged to lows at which they were before nearly four months ago.A Incidentally, the issue of political instability has happened in a month that is the last one of the current fiscal. During March, most of the markets whether it be commodity market or stock markets, trade and industry, face shortage of funds and the mood to make fresh investment is absent as well. For stock markets, the end of the March series of futures and options contracts is an additional factor that came in the way of the prospective buyers in venturing into buying even at the increasingly falling prices. The markets are most likely to reel under selling pressure from the frightened bull operators and fresh selling attack by the bear operators except if a solution between the UPA and DMK is found, a highly remote possibility. Therefore, investors are suggested to let the dust get settled down and political picture become clear and then only decide as to what to do in the markets. Any decision taken in haste especially for buying stocks because they have gone too much down, may not turn to be wise as whenever there is a political uncertainty, it is very difficult to judge as to whether the final bottoms have arrived or not. Besides, the month of March is fast approaching an end and so is the financial year 2012-13. From second week of April, the most important corporate number season is likely to come out and by that time the present tension over the political uncertainty might have been over or eased. The markets are also expected to have fully discounted whatever worst of the political uncertainty and therefore bottomed-out. So it would be better to buy stocks on the basis of annual performance of the companies which will be available from the second or third week of April. Till then, wait and watch!
18 Sep 2019 4:10 PM GMT