Mumbai, May 14: “India — time to reboot,” says a report by UBS Investment Research, an affiliate of the premier foreign investment bank.

Even before political parties stop to think what went wrong with the markets today, leading brokerages, including foreign institutional investors, have put on their thinking caps and are busy analysing how the markets would behave under the new government.

“The choice of ministerial positions will be a dominant influence on economic policy formation. But, in our view, a Congress-Communist alliance does not portend well,” UBS tells its clients in a report.

Citigroup Smith Barney in a report says, “Stability — maybe yes. But policies??” — the report puts two question marks on it. “While Congress has a good track record on reforms, it dependence on the Left parties would raise questions on tough measures,” Citigroup Smith Barney told its clients.

The firm has cut its 12-month sensex target to 5800 from 6600 earlier and has also lowered estimated GDP growth for 2004-05 to 6.6 per cent from 7 per cent. Year-end rupee estimate have been cut from Rs 42.5 to Rs 43-43.50.

The firm’s apprehensions voice a foreign investor’s concerns perfectly. “What can the new government do or not do?” the report asks. It goes forth to explain that the scope for populist policies has increased and some of the pending but contentious reforms are unlikely to be implemented.

“We believe that many of the reforms initiated by the BJP-led government, including privatisation, are likely to proceed, albeit at a slower pace.”

According to UBS, the reforms that may not progress under the new government are the contentious policies on labour.

Other controversial issues are the policy to eliminate fiscal defict of the central government by 2008, introduction of VAT and a cut in government's interest rate on small savings.

Local brokerage Khandwala Securities says, “This new house is still a fractured mandate and there is large anti-incumbency factor. We did not notice this when we made our past recommendations.” “It could be bad for the Indian equity markets,” it warns.

Khandwala recommends booking short-term profits and selling on highs. And it tells investors not to be “highly optimistic. It could be costly”. The BSE sensex would hover in a range of 5000-6000 points for some more time, the firm feels.

Citigroup feels banking sector reforms would be impacted as foreign direct investment limits in financial services (especially insurance) could all be on the back burner.