M-cap down Rs 2.25 tn since first exit poll

PSUs take a caning as Left Front members attack divestment, reforms

The market capitalisation of the Indian stock market recorded its biggest ever fall of Rs 1,15,000 crore (Rs 1.15 trillion) to Rs 10,810,00 crore due to the anxiety over reforms and divestment.

With this, Rs 2,25,000 crore (Rs 2.25 trillion) has been wiped out from the markets since the first exit poll on April 23, 2004, which indicated a hung Parliament.

The market valuation of the government holding in public sector units (PSU) declined by Rs 37,078 crore, while the public and others lost Rs 18,500 crore as the Left front began a verbal assault wherein , among other things, they suggested the closure of the divestment ministry, stopping the sale of profit-making PSUs, and raising the tax to GDP ratio.

Member after member of the Left Front, supported by senior Congress leaders harped on the same theme across television channels which only added to the panic.

PSU and banking sector stocks led the fall, with listed shares losing market cap worth Rs 55,520 crore. Oil PSUs were major losers, with a loss of Rs 27,780 crore in market cap.

Nationalised banks were major contributors to this slide, with a market cap erosion of Rs 13,360 crore. The 30 Sensex stocks lost Rs 44,914 crore today.

There was panic selling across the board when the Congress said 'mindless' divestment will not be pursued.

Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL), the two oil stocks in the divestment list, lost ground with BPCL falling by 13.1 per cent to Rs 356.40 and HPCL down by 12.8 per cent to Rs 331.35.

Other major PSUs, Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation, GAIL India and Neyveli Lignite lost over 15 per cent each.

The biggest single-day losers in market cap were ONGC (Rs 14,680 crore), Indian Oil Corporation (Rs 8,351 crore), Reliance Industries (Rs 4,831 crore), State Bank of India (Rs 4,694 crore), GAIL India (Rs 3,302 crore), Bharti Tele-Ventures (Rs 3,040 crore) and SAIL (Rs 2,082 crore).

Among sectoral losers, refinery firms saw a Rs 27,780 crore dip in market cap, followed by banks (down Rs 17,054 crore), diversified companies (Rs 6,180 crore), telecom (Rs 4,829 crore), power (Rs 3,621 crore) and information technology (Rs 3,505 crore).

As many as 16 sectors shed market cap of over Rs 1,000 crore, including steel, pharmaceutical, finance, automobile, electrical equipment, aluminium, cars and fertilisers.

Reuters adds: On election results day on Thursday, foreign funds sold $138 million worth of Indian shares. Those same funds have now sold $500 million worth in eight straight trading sessions, equivalent to one-eighth their total investment in India for 2004.

"It has reached a situation where people have given up hope. They have lost heavily," said Ajit Suarana, managing director of Dimensional Securities.

"But I think it is being overdone and people should use this as a buying opportunity. Just because privatisation may not go through, doesn't mean the country will come to a halt."

Earlier, India's largest communist party had confirmed the fears of many investors in Asia's third-largest economy, describing the privatisation ministry as "unnecessary".

As for Congress, it plans to continue with privatisation "selectively", saying it will not sell profitable companies.

"That led the market to believe that the government may not be too keen on further reforms, which triggered a collapse in the stock market, which has been the guiding post for the currency market because of strong capital inflows in the past year," said V. Rajagopal, head of forex trading at Kotak Mahindra Bank.

India's rupee climbed by more than five percent against the dollar last year, helped by record levels of overseas money flowing into the country. So the rupee, along with Indian government bonds, weakened on the sharp stock sell-off.

The Bombay index of state-run companies tumbled as much as 16 percent on Friday, having leapt 340 percent in the two years up to January 2004, as the government pushed through asset sales.

"Clearly, the privatisation story is over for now," said C. Jayaram, a director of Kotak Mahindra Asset Management.

Among those shares hardest hit on Friday were companies in which the NDA government had planned to sell strategic stakes.

The shift out of state firms began two weeks ago when exit polls first pointed to a hung parliament, and since then the state-run firms index has lost a fifth of its value. The slide gathered momentum once it became clear communist parties would probably have a say in the new government's economic policies.

"The (privatisation) ministry is unnecessary and this is the view of the party," Prakash Karat, a senior member of the Communist Part of India (Marxist), said. "There is no need for such a ministry."

Privatisation was one of the biggest reforms of the outgoing government, helping attract more than $10 billion in foreign equity investment into India since the start of 2003. The inflow powered a 73 percent rise in the key Bombay share index in 2003, making it Asia's best performer after Thailand.