Sentiment turns weak as political risk rises

K.S. BADRI NARAYANAN | Updated on March 12, 2018 Published on March 24, 2013

Lack of confidence: The Union Ministers P. Chidambaram, Kamal Nath and Manish Tewari addressing a press conference after its ally DMK pulled out from the Union Government. — Kamal Narang

Settlement in the futures and options segment and truncated week will keep the equity market volatile this week but in a broader range. The market remains closed on Wednesday on account of Holi and on Friday due to Good Friday.

As the March series contracts in the F&O segment are expiring this Thursday, volatility will remain high during intra-day on the bourses.

But the key worry for analysts is on the political front. At a time when India is battling it out on economic front with investors looking for greater reform initiatives and solid policy actions to fix the widening current account deficit, Dravida Munnetra Kazhagam, a key ally of the ruling Congress-led United Progressive Alliance, withdrew its support.

Analysts fear now that the reforms and pro-growth measures may take a back seat due to the political rift. Though Finance Minister P. Chidambaram and Parliamentary Affairs Minister Kamal Nath emphasised their resolve to push ahead with reforms, analysts are still sceptical.

Brokerage firm Religare said: “Amidst rising macro-economic uncertainty and still significant risk on India’s twin-deficit problem, the possibility of a potential sovereign downgrade has not completely mitigated. As such, we believe the Government would not delay its reform push agenda especially so far ahead of the 2014 general elections.”

Another fallout due to political rift could be capital flows. Foreign institutional investments have been strong despite India being accused of policy inertia and corruption. Any increase in uncertainty will push FIIs to press the sell button that could have cascading effects not only on equity markets but also on the currency markets and economy as well.

The RBI’s hawkish stance will continue to hurt sentiment. The central bank, while decreasing the short-term lending and borrowing rates by 25 basis points last Tuesday, said: “Even as the policy stance is on addressing the growth risks, the headroom for further monetary easing remains quite limited.”

Morgan Stanley believes that monetary policy has a limited role in reviving growth in the present cycle. It said: “We expect the Government to continue to take policy measures to slowly improve productivity growth and growth mix. The initial phase of recovery will be driven by an improvement in productivity growth rather than a big rise in headline GDP growth.”

Besides weak domestic cues, global factors will also weigh heavily on the bourses, particularly after last week’s events in Cyprus. Global markets suffered heavily after Cyprus said it was planning to tax bank deposits as part of a €10-billion sovereign bailout deal.

Cyprus, which attracted investors from many countries due to its treaties with them on double taxation, will have to make hard choices to avert a bankruptcy.


Published on March 24, 2013

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.