Political uncertainty has hardly any role to play in a dead market or so it appears. Congress President Sitaram Kesri's second missile against the United Front government in eight months did very little to shake the tired bears on the bourses. The bulls have already been slaughtered with enough fire power over the past one month. There is recession, plenty of money at cheap interest rates, the rupee has been pulled down and FIIs have fled after the Asian currency turmoil. The Sensex has already shed nearly 1000 points. So, what more can political uncertainty do to the markets now?

For corporates and markets, political uncertainty might be a misnomer these days. True, as the political drama unfolds in the next two days the stock market might see further erosion in stock values, if the political players at the Centre lead to the worst case scenario where the nation is dragged to another election. An additional dose of bad news was almost ignored with the Sensex gaining around 70 points in the last two trading days of the week.

The gains might have been partly due to technical reasons in an oversold market. But there was very little room for panic in a market where blue chips had already lost 30 to 50 per cent in values. The markets have reacted with nervousness in the past to political turmoils. But such reactions have come about in a bullish market. Take for instance, the withdrawal of support to the Deve Gowda government last March. On March 31, the day after the Congress withdrew support to the UF government, the sensex crashed by 300 points. The market received this news when it was basking in the glory of the Union budget.

The seeds of political uncertainty were sown towards the end of 1994, when the Congress started losing its hold on southern states and there was a clear threat to its position at the centre. The markets had at that time peaked with the Sensex touching a high of 4644. Politics played a key role in wiping out the unhindered gains built over one year. The underlying fear centred around the fate of reforms. Today survival and not so much th pace of reforms is preoccupying the minds of players in the markets and the corporate sector. Political instability will no doubt create a vacuum when it comes to decisions on reforms, especially those in the nature of amendments to companies bill which has to be passed by Parliament. The government, in spite of the political storm, approved reforms in the oil sector.

With the impact of slowdown reflecting in the first half results of companies like Tisco, IPCL and banking majors like SBI, BoI and BoB, revival and consolidation have become the immediate concerns. Although the Sensex may lose further ground or consolidate at the current levels, stock valuations will largely depend on a company's ability to tide over the effects of recession and rupee depreciation.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.