The Hindu : Front Page : Exit poll predictions trigger stock market crash

Online edition of India's National Newspaper
Wednesday, Apr 28, 2004

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Front Page

Exit poll predictions trigger stock market crash

By Alok Mukherjee

NEW DELHI, APRIL 27. There was a virtual bloodbath at the stock markets today with the Bombay Stock Exchange Sensitive Index (Sensex) crashing by 213 points at close of trading, the biggest fall since March 13, 2001 when the last stock scam broke out. This time, the fall is attributed to the totally unexpected exit poll results which are pointing towards a hung Parliament.

With most marketmen caught off-guard by the exit poll results, the crash began right in the morning with the Sensex opening 84 points down from Monday's close and quickly rolling down 155 points by about 10.45 a.m.

Scrips across the board took a beating but the most affected were public sector shares, bank scrips, cement and auto stocks. The National Stock Exchange index, Nifty, followed the Sensex in the downward spiral.

"A hung Parliament is the worst thing possible at this juncture when the economy is expected to grow at over eight per cent in the next few years. The market had somehow assumed that the National Democratic Alliance would come back to power, so the results of the exit polls indicating a hung Parliament came as a shock. Anticipating the NDA's return, the market had assumed a certain direction for the economy, but all assumptions now have a question mark attached," Saumitra Chaudhuri, Economic Adviser, ICRA (Investment and Credit Rating Agency) told The Hindu . "There are two more phases to go and five exit polls each time, so the uncertainty will continue till May 13," he added. Market analysts said that had the exit polls indicated a marginal shortfall in the NDA tally, the panic in the market would have been less. But a 30-40 seat shortfall pointed to a hung Parliament making the outlook for the economy quite grim. They also emphasised that while major political parties were committed to economic reform, governments did make a difference and a `wrong' combination could seriously impede progress.

Mr. Chaudhuri felt that a repeat of the 1996-like situation — when the Narasimha Rao Government failed to come back to power — could have more serious consequences for the economy now than at that time. "The Government's finances then were not as much under strain as they are today. International competition too was not as severe as it is today. Physical infrastructure, particularly power, was not as bad. We lost six years after the Narasimha Rao-Manmohan Singh combine failed to come back — two years under the United Front and four years of experimenting by Yashwant Sinha. It is only in the last two years that some ground has been covered but a lot remains to be done," he added.

Explaining today's crash, market analysts say the prospects of a hung Parliament have created doubts over public sector disinvestment and about the banking sector and hence the battering of their stocks today. Besides, the Foreign Institutional Investors (FII), who are probably the most significant players on the Indian bourses, do not like the smell of political uncertainty. In the normal course, a selling spree is expected by the weekend as the next settlement cycle is coming up involving some Rs. 11, 000 crores. But the panic selling seen today is unlikely to abate, as the general advice is to stay off the market till the political situation clears up.

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