Sensex dips 190 pts on reform worries

Goldman Sachs report viewed the poll results as negative for economic reforms

Bulls took a beating on Tuesday as Congress partys poor show in state elections raised concerns over its ability to revive a stalled reform process. The Sensex resumed lower at 17,336.64 and moved rapidly in a wide range of 17,691.96 and 17,128.28 before ending at 17,173.29 points,a net loss of 189.58 points,or 1.09 per cent,from its last close.

Goldman Sachs report viewed the poll results as negative for economic reforms and the markets. We think the results will not provide the political space for the government or the confidence to carry through unpopular reforms. We think the best that can be hoped for is muddle-through policies by the government, it said.

According to a Citigroup report,market expectations were that of the Samajwadi Party forming the government with support from the Congress. That has not happened. Thus hopes of the Congress being a critical ally of the SP at the state level and consequent reciprocal support at the Centre is now unlikely, it said.

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Consensus would suggest the Congress will get more cautious; i.e. effectively hand out more sops resulting in further fiscal slippages. The Congress could well be much more forceful with reform given that back peddling on them does not seem to be paying electoral dividends for now. But,in our view,we think the odds favour more defensive rather than offensive economic management from the government from here, Citigroup said.

The Sensex had rallied by over 300 points at one stage but later plunged as the poll tally became clearer. Profit booking emerged after it became evident that Samajwadi Party would form the state government without any help from the Congress.

Congress winning in the state elections would have been welcome news for the markets since that would have ensured a smooth ride for the reforms initiated by the government in the centre, said Shanu Goel,senior research analyst,Bonanza Portfolio.

The Centre has been on the back foot to push policies like opening up multi-brand retail and to raise the limit on foreign investment in insurance firms.

UP-centric stocks go down

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Stocks of Jaiprakash Group companies declined for the second day in a row. Jaypee Infra declined by 2.06 per cent,Jaiprakash Associates by 1.07 per cent and Jaiprakash Power by 4.12 per cent. However,after Mondays rally,stocks of companies in the Anil Ambani group considered to be close to the Smajwadi Party also plunged on profit-taking. Reliance Power fell by 7.09 per cent,Reliance Infra by 5.73 per cent and Reliance Comm by 5.23 per cent. Sugar producer Bajaj Hindusthan settled for the day 7.86 per cent lower at Rs 33.40,while Dhampur Sugar Mills dropped by 6.42 per cent to Rs 39.35 on the BSE. ENS