Merrill Lynch downgrades India on reforms jitters

Tuesday, 25 May 2004, 07:00 Hrs
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MUMBAI: Global investment banking major Merrill Lynch has downgraded India to "market weight" from "over weight" in the wake of uncertainty over the pace of economic reforms in the country.

Merrill Lynch Asia Pacific-India strategy report asked investors to cut exposure to the Indian stock market, said a senior official Monday.

"India was in a flux in the last week politically," Andrew Holland, executive vice president of DSP Merrill Lynch, told IANS.

"There was no Common Minimum Programme (CMP), no announcement of government or ministers and there was plenty of uncertainty in political terms."

The report prepared by the Global Emerging Market Group said: "Change in the government leaves the reforms process, fiscal and monetary situation, in question.

"Valuations are not compelling enough given the outlook for the risk premium and India remains overweight amongst international investors."

The stock market witnessed a bloodbath last week as investors fretted over possible a socialist tinge in the new government's economic policies because of key legislative support from Left parties.

Communist leaders had caused a scare by demanding the scrapping of the disinvestment ministry.

The key index registered its biggest crash since the stock scam of April 1992 Monday, wiping out $40 billion in market capitalisation.

"The near term disappointment could accelerate selling that has until recently been rather modest," said Holland.

"We do not question Congress' reform credentials but rather those of its coalition partners. However, India faced uncertainty over economic reforms process under the new Congress-led government."

The report said India's public finances could come under pressure and asset sales become slow, placing upward pressure on rates.

"The path of reforms is highly uncertain over the coming months. Although there have been soothing words from Congress, we prefer to wait and see what the new government does in the coming months," it warned.

Source: IANS
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