‘Such high volatility is usually the doing of speculators and hedge funds who do event-based trading for a fast buck. Uncertain political situation is a chance to capitalise on investor fears,’ said Jagannadham Thunuguntla, equity head at SMC Capitals.

1. Anxiety grips investors ahead of election verdict
Indo-Asian News Service
Mumbai, May 14, 2009
With counting of votes for the ensuing national elections due May 16, and no party or group seen
emerging clear winner, Indian stock markets are once again edgy, in a repeat of volatile trading witnessed
during the similar situations in the past.
The sensitive index (Sensex) of the Bombay Stock Exchange (BSE), often described as the barometer of
Indian equities, rose nearly 10 percent in the nine straight weeks ended May 8, to make it the longest
weekly rally since July 24, 2006. But trading has turned volatile thereafter.
There is a distinct sense of disquiet among the investors, because of which the 30-share key index has
been fluctuating wildly in a range of more than 650 points, or over 5 percent, this month.
The only saving grace for the weak-hearted, speculators and analysts maintained, is that May 16, when
the votes will be counted, is a Saturday, when stock markets across the country will remain shut.
Nothing reflects the fluctuation better than the India Volatility Index of the National Stock Exchange
(NSE).
This index, which measures markets expectations of volatility over the near term, stood at a whopping
50.73 points May 13. Typically, a level of 25-30 points reflects stability and anything above 35 points
indicates risk.
‘The market becomes edgy whenever there is uncertainty,’ said Avinash Gupta, assistant vice president
with leading brokerage Bonanza. ‘This does not immediately end with the formation of a government. The
agenda of coalition partners also concerns the market,’ Gupta told IANS.
Picture this: In October 1999, when the National Democratic Alliance (NDA) returned to power after a
snap poll, the Sensex fell about 7.5 percent primarily on fears that then prime minister Atal Bihari
Vajpayee may not be able to hold the new coalition together. The previous alliance, after all, had
collapsed abruptly.
Then in May 2004, on the eve of the United Progressive Alliance (UPA) taking over the reins, the key
index plummeted 15.7 percent, as investors were rattled that the NDA - which by then was seen as
investor friendly - would not return to power.
‘Such high volatility is usually the doing of speculators and hedge funds who do event-based trading for a
fast buck. Uncertain political situation is a chance to capitalise on investor fears,’ said Jagannadham
Thunuguntla, equity head at SMC Capitals.
Agreed Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry
(FICCI), who said there was a major difference between how the corporate sector viewed elections and
how the market investor looked at it.

2. ‘Corporates look at fundamentals and long-term policy stability, while secondary market players tend to
view the short-term gains or losses. For speculators, even a short-term period of uncertainty can cause
nervousness,’ Mitra told IANS.
‘Naturally this time, when the Congress says it will be a close call, the Bharatiya Janata Party says it will
be touch-and-go and the Third Front says it will try to form a government of its own, there is that bit of
short-term concern.’
This explains the reason behind the current volatility, where there is no clear signal yet on which coalition
will form the next government, raising questions over stability and continuity in governance and policies -
at least for speculators.
‘History suggests that as long as a stable coalition comes to power, the impact on sentiment and activity
is likely to be positive,’ said Tushar Poddar, vice president for Asia Economics Research with leading
consultancy Goldman Sachs.
‘A lower probability event in our view is that the election outcome is seen as unstable due to a fractured
mandate. Such a result would be negative for policy-making and for markets in the short-term.’
Echoing similar sentiments, Gupta is more forthright and says the worst fears for the markets is the Third
Front coming to power, with the active backing of Left parties.
‘It would jolt the market badly,’ he said. ‘The Left is expected to hamper reforms.’