The Telegraph
Since 1st March, 1999
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Gujarat triumph keeps market guessing

Mumbai, Dec. 17: Not everyone in the market is sure that a saffron sweep in Gujarat will set cash-registers on Dalal Street ringing. Most are anxious to know if the triumph will embolden hawks within the party to raise the stakes in their quest to scupper reforms.

The last two days have seen market indices heading southwards despite the fact that Gujarat could not have expressed its choice in a more emphatic manner.

Will the hawks in the BJP dictate economic policies' Will reforms be shelved despite the Prime Minister’s assurance' ... these are questions vexing investors. In the past, hard-liners in the BJP have not hesitated from voicing their opinion on several occasions against divestment of PSUs in strategic sectors.

The resounding victory, players in the market fear, will make the cacophony against privatisation and other pro-reform moves initiated by the government grow louder. “We are watching the situation and trying to get a grip on what is unfolding,” commented a fund manager affiliated to a prominent mutual fund in Mumbai. “If the anti-reforms brigade gathers steam, it would be a distressing signal for the markets,” he added.

The fact that markets have lost some of their pace in the two days after the Gujarat results were declared has amplified apprehensions expressed by fund managers.

However, there is a section of market-watchers which disagrees with the view that reforms will be stalled. Arun Kejriwal of Kejriwal Research & Investment Services, is one of them who feels things will be fine: “So far, there has been no evidence and it is too early for fund managers to take a stand on the matter.”

There have been no statements from perceived hawks on privatisation. Kejriwal points to the recent rally on stock markets, with BSE sensex gaining more than 543 points from 2,888 in only 34 trading sessions. “The markets are pausing to catch their breath,” he said.

However, many are not impressed by the breadth of the surge, which they argue has been fuelled by bank stocks; one-time technology favourites have been testing lows.

Kejriwal is quick to warn of selling pressure from foreign funds if the government reviews the privatisation process under pressure. He stressed, however, that the undertone is still very strong in the market.

“The fund managers are still pondering and waiting for the first signs of a shift if any,” said a fund manager affiliated to a foreign mutual fund. “So far, it is only a thought and a fear that is on the back of our minds”.

However, there is still confidence that no major upheaval in the reform process is expected. This has ensured that foreign funds hold on to their stocks, he added.

Another major concern is that the monthly expiry of futures contract is just six days away. This is the largest-ever position since trading in derivatives began here.

Today, the sensex fell another 17.33 points to close at 3311.06 on the Bombay Stock Exchange (BSE) today following fresh selling by operators as well as foreign funds.

Majority of banking counters, after initial setback, recovered smartly towards the fag-end on fresh buying by operators. Index-based old-economy stocks like Grasim, Gujarat Ambuja, L&T, ACC, Bhel, BSES, HDFC, HPCL, reliance and Telco suffered sharp to moderate reverses. Front-line tech stocks lost initial gains.

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