MUMBAI, Nov 23: The fancied Sensex is likely to take further beating if the United Front government falls and general elections are announced in the coming days. Seasoned marketmen fear that the stock markets will keep a low profile in view of the continuing uncertainty on the political front.

A section of marketmen fear that the Sensex might lose around 500 points and fall below the 3,000-mark if Lok Sabha is dissolved and mid-term polls are announced. Sensex which is currently at 3523.44 points has already fallen by over 1,000 points from the 1997-high of 4605.41. Similarly, market capitalisation has also fallen by around Rs one lakh crore to Rs 4.96 lakh crore in the last four months. ``If the Sensex loses 500 points in view of the uncertainty associated with the polls, market cap will fall by another Rs 50,000 crore,'' said a director of the Bombay Stock Exchange.

According to Anand Divan, a senior broker, if elections are announced, there will be uncertainty in the markets for about three months. ``Foreign institutional investors (FIIs) - who have already invested over $ 9 billion (around Rs 33,000 crore) - may keep away from the market as they did in the previous elections. The crucial level for the Sensex will be 3250. If it falls below this level, there will be panic,'' he said.

The two factors which had affected the stock markets were political turmoil and depreciation of the rupee against the dollar. ``All other fundamentals are in favour of a bullish market. Corporate results - except for Tata Steel, IPCL and Telco - were generally good and in line with market expectations. Besides, other positive factors like the fall in interest rates, low inflation rate, good monsoon and moderate growth in agriculture sector should be favouring the market. If some miracle happens and the UF government survives, then the market will pick up as it has already bottomed out without considering the election factor,'' said Pawan Dharnidharka, a senior BSE broker.

Marketmen, as like anybody else, is not sure about the outcome of the elections as no party is fully prepared for it. Also nobody is sure about which party is going to get a upperhand in the elections. ``If a new party comes to power at the Centre, there can be some changes in the current policies. One will have to wait and see,'' said another broker, adding that the inflow of foreign investment will fall for the time being.

In fact, FIIs have already become sellers in the market. As per the SEBI figures, there has been a net outflow of Rs 212 crore following FII selling on stock markets in the first two weeks of November. FIIs normally keep away when the government changes and elections take place in a country. It may be recalled that FIIs have been moving the markets in India in the last two years. On the contrary, domestic financial institutions were not in a position to influence the market - as they used to do earlier - and compete with FIIs.

Markets are also worried about the fate of many pending bills especially the Companies Act, the Income-Tax Act, Money Laundering Bill, Insurance Bill and so on. There are also fears about the continuation of reforms in many sectors like telecom, power and roads and keeping the fiscal deficit at the targeted levels.

All these are short-term worries in the eyes of the market. Once the election process is over and a new government takes over, things should start normalising with the next Union budget being the deciding factor. Many FII fund managers and BSE president M G Damani agreed that reforms initiated in the last five years cannot be reversed in the present circumstances. But still there are skeptics in view of the currency/stock crisis in South-east Asian countries.

Even though many incentives to investors and the corporate sector has been given in the last union budget, it couldn't be utilised due to the political uncertainty. The investment climate will improve only when the political situation turns normal.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.