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Defiance by SP and TMC makes markets wary

* Movement in Indian ADRs portends a weak opening on Thursday

Written by ENS Economic Bureau | New Delhi | Published: June 14, 2012 1:01:11 am

UPA ally Trinamool Congress and Samajwadi Party’s surprise decision backing Prime Minister Manmohan Singh as a Presidential candidate has already taken its toll on Indian shares listed abroad. Out of the total Indian ADRs (American Deposit Receipts) listed on New York Stock Exchange,9 were trading in the negative zone at 10 pm IST (11 am EDT).

The same trend could continue in the domestic markets on Thursday. The government will also be releasing data on the monthly wholesale price index on the same day,the last numbers before RBI goes in for the credit policy review on June 18.

Most analysts were unwilling to come on quote,but agreed that political uncertainty will take its toll on the stock and currency markets. “Markets will react to it. Stock markets are likely to go southwards and will have a serious impact on rupee,which is likely to depreciate,” said Venugopal Dhoot,CMD,Videocon.

UR Bhat,MD,Dalton Capital Advisors,agreed and said,“The level of political uncertainty is set to increase and this will be reflected in the market. Markets will be a bit more nervous.”

On Monday,global rating agency Standard and Poor’s had criticised the division of power between Congress president Sonia Gandhi and Prime Minister Manmohan Singh. “It would be ironic if a government under the economist who spurred much of the liberalisation of India’s economy and helped unleash such gains were to preside over their potential erosion.”

The 30-share BSE Sensex,which has fallen by over 8 per cent since February this year,gained a mere 18 points to close at 16,880.51 on Wednesday as wary investors await WPI inflation data for May to gauge the central bank’s policy action.

The Indian rupee too has been steadily falling by 25 per cent since April 2011 and touched a record low of 56.52 against the US dollar,ended the day at 55.68 against the US dollar as worried investors have left for safer havens.

High interest rates and poor investment sentiments led to GDP growth slowing to a nine year low of 5.3 per cent in the fourth quarter of 2011-12,bringing down the growth rate to a weaker than expected 6.5 per cent for the whole of last fiscal. Reflecting the general slowdown in the economy,industrial output too grew by a mere 0.1 per cent in April led by a contraction in capital goods.

While global investment bank Goldman Sachs on Wednesday advised clients to stay ‘underweight’ in Indian equities as “the Indian stock market does not present an attractive risk/reward entry point currently as macro headwinds are likely to persist in the near-term”,rating agency Standard and Poor’s had earlier this week warned that India could be the first BRIC nation to lose its investment grade rating.

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