DMK move pulls down stocks

MUMBAI, July 14: The decision of the DMK to withdraw from the United Front government cast a bearish shadow on stock exchanges all over the...

MUMBAI, July 14: The decision of the DMK to withdraw from the United Front government cast a bearish shadow on stock exchanges all over the country. Share prices tumbled and indices nosedived as a selling avalanche gripped the markets and partially wiped out the gains in the last fortnight.

The Sensex initially slumped by 140 points as operators pressed the panic button on the Bombay Stock Exchange. Although the Sensex recovered marginally from the session8217;s low, it closed with a loss of 97 points at 4225.02. The NSE-50 index lost 34.05 points towards the close at 1,187.05 from the previous close of 1,221.10 on Friday.

As soon as the news about DMK withdrawal spread in the markets, nervous selling started. The ITC stock slumped by around seven per cent on the NSE when it closed at Rs 506.05 from previous close of Rs 544.10 on Friday. Among others that lost heavily were SBI 3.66 per cent, Reliance 3.53 per cent, TISCO 4.67 per cent and Bajaj Auto 5 per cent.

Brokers expect volatility to set in as they see another bout of political uncertainty gripping the market. The latest political development has cut short the bull-run sustained by the steady inflow of FII funds. The market has been caught off-guard once again. The split in JD and the formation of Rashtriya Janata Dal was almost ignored by the market.

Said Sanjay Kaul, a leading broker, 8220;the message is that the partners of the government are not supporting it. A mid-term poll is imminent as the coalition government is not working out. The left is pulling the strings, while the JD has already split and the DMK has withdrawn from the government.8221;

The DMK is represented by Industry Minister Murasoli Maran, Surface Transport Minister T G Venkataraman, Minister of State for Defence N V N Somu and Minister of State for Petroleum and Natural Gas T R Baalu in the ruling coalition government. Maran is considered as a key supporter of the liberalisation process. According to a BSE director, this has happened at a time when the political uncertainty in Bihar is creating problems.

Brokers even attributed the free-fall in stocks to a misunderstanding in the market. According to a dealer, a section of the market mistook the DMK for the Tamil Manila Congress TMC and thought that the country would once again have to look for a new finance minister. Amidst this confusion, FIIs who have been supporting the market preferred to stay away from their purchases today. Similarly, bull operators deemed it wise to square off their outstanding positions.

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Brokers said the market was expecting another bout of selling pressure.