Noon| Markets tank on political instability

Noon| Markets tank on political instability

New Delhi: After opening weakly, the markets lost further ground by mid-day with the DMK deciding to go ahead and quit the union government. The six DMK ministers are planning to meet the Prime Minister later on Monday to hand-over their resignations.

Sensex:18,129 –1.93%

Nifty:5,425 –2.04%

So what does this mean for the markets? For one, reforms will be put on the backburner.

As Ajay Parmar, Head Research-Institutional Equities at Emkay Global Financial Services notes:

With the political risks rising we believe that the government machinery will be less inclined to take decision, the direct of impact of which will be on a lot of infrastructure projects that needs green signals. As far as the UPA is concerned, it will be very defensive for some time till the current issues get settled down. We do not expect any major move on issues like FDI, deregulation of diesel prices, any bold measures to cap the fertilizer and fuel subsidies in near future.

The jump in crude oil prices is also adding to the selling pressure. This led to broad based selling in Indian stock markets. All the sectoral indices are trading in red.

BSE Realty: 20,024, –2.55%

BSE Auto: 8,716, –2.28%

BSE Bankex: 12,183 –2.10%

With the crude oil prices resuming their up-trend, fears of inflationary pressures further accelerating has spooked investors. Continuance of inflationary pressures will make central bank take a less sanguine view and might force it to further raise interest rates. Any further rise in interest rates will increase costs for companies and dampen consumer purchases as borrowing become costlier.

Tata Motors: 1,125, –4.30%

IDFC: 142, –3.99%

Sun Pharma: 415 -3.96%

JP Associates: -3.75%

With prospects of further increases in crude prices, it might be a while before markets recoup losses.