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Wed, May 19, 2004 - Page 12 News List

Investors cautiously return to battered Indian stock market

AP , NEW DELHI

Indian investors yesterday were holding their breath a day after the country's stock markets had their biggest one-day plunge in their 129-year history over fears that the new government will slow or halt economic reforms.

Since Thursday, when Parliament election results showed Sonia Gandhi's Congress party would be able to govern only with support from pro-labor, anti-privatization Communists, India's capital markets have bled some 2 trillion rupees (US$45 billion), brokers estimate.

The outflow culminated in what has been labeled "black Monday."

Regulators closed the markets twice on Monday: Rules require suspension of trading when stock values change more than 10 percent in a day.

After intervention buying from state banks and financial institutions, the Bombay Stock Exchange -- Asia's oldest -- recovered halfway from its 800-point intraday fall, the worst since it opened in 1875. It closed at a 12-year low. The National Stock Exchange, India's largest, plunged 17.47 percent, the worst day in its 10-year history.

Indian investors -- whose funds have pushed growth to 8 percent in the past year, providing the capital needed to build highways, dams, hospitals and schools -- were furious as they watched their holdings shrivel.

Most of the fleeing funds belonged to foreign investors, who had plugged US$7 billion into India's markets during a yearlong rally.

"There's a possibility this government might not last for more than a year," said Rahul Sen, an economist with the Singapore-based Association of Southeast Asian Nations Economic Bulletin.

In the meantime, he said, "the reforms process is going to slow down. Probably the disinvestment [privatization] process is going to be stopped."

Since Thursday, Gandhi's communist allies have insisted no healthy Indian government concerns should be sold, while manpower and money will be spent to heal sick ones.

The Communists waited four days to announce Monday they would not join Gandhi's government, but support it from outside, a recipe for instability.

"The Left is supporting from outside, but this confusion is because they can still wield pressure on the Congress constantly," said D.R. Dhariwal, one of the chanting investors outside the Bombay stock exchange. "Each party head is making conflicting statements. That's the problem."

The outgoing government that ruled India from 1998 broadened many of those policies, although it was accused of going slow on firing unproductive government workers, a major vote bloc, and not getting taxpayers' the best deal on sales of profitable state concerns.

India's economic liberalization now entails selling government companies, relaxing rules that hamper entrepreneurs and opening India's markets to products, services, capital, and competition from abroad.

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