Sensex In India Plunges 2.4%; Telecom Spectrum Investigation Fallout

Devan Biswas
04 Feb, 2011
New York City

Stocks in Mumbai dropped sharply and Prime Minister Singh noted inflation may derail India

[R]5:00 PM Mumbai – Stocks in Mumbai dropped sharply and Prime Minister Singh noted inflation may derail India’s high growth initiatives. Delhi Court allowed five days of questioning of former telecom minister by the Central Bureau of Investigation. A. Raja is the first minister to be arrested while the ruling party is still in office.[/R]

Stocks in Mumbai trading dropped sharply after Prime Minister admitted that high inflation may derail India’s growth plan. Telecom spectrum probe fallout and the elevated commodities prices also weakened the sentiment.

The BSE Sensex declined 2.3% or 441.16 to close at 18,008.15 and the CNX Nifty on the National Stock Exchange decreased 131.00 to close at 5,395.75.

Singh statement underlined the constant struggle between growth and inflation and for years the UPA government has focused on growth at all cost. The inflation has been on the rise for more than four years and the central bank has signaled that monetary policy is ineffective in stemming food prices which stem from lack of supply.

Prime Minister Singh in a speech said “Inflation poses a serious threat to growth momentum” and regardless of the sources the inflation “needs to be tackled with great urgency.”

He also noted that public distribution system needs to be strengthened and farm productivity needs to be improved.

India’s agriculture department estimated record crop this season and despite heavy rainfall in several regions that caused flooding. However, the government has focused little in improving storage and distribution in the last ten years.

Private estimates suggest that as much as 30% to 40% of the crops is wasted for the lack of transportation and climate controlled storage.

New Delhi court ordered that former telecom minister Andimuthu Raja can be held for five days for questioning.

The Central Bureau of Investigation told the judge that Raja gave licenses at lower prices to few telecom companies which later sold to foreign investors at a significant premium.

CBI lawyer Akhilesh accused Raja in the Delhi court that his action cost the losses of Rs 22,000 crore or $4.8 billion. Ramesh Gupta, the lawyer for Raja argued in the court that Raja is cooperating and should not be sent to jai.

In all 73 licenses are questioned by the Comptroller and Auditor General of India including, Tata Teleservices Ltd, Shyam Telelink Ltd which has been renamed Sistema Shyam Teleservices Ltd, Unitech, and Swan Telecom which is now known as Etisalat DB Telecom Pvt.

Stock Movers

In trading, 873 gained and 2003 declined and 106 stocks were unchanged. On the BSE trading volume increased to Rs 3,679 crore. Of the 30 stocks in the index 29 declined.

Reliance Industries declined 2.5% to Rs 919.50 and ITC fell 4.2% to Rs 152.90 on the worries that the coming budget will see another hike in cigarette taxes.

ACC Limited declined 1.3% to Rs 972.50 after the cement maker reported year ended consolidated net profit tumbled 31.10% to Rs 1077.52 crore.

Balrampur Chini Mills Limited slumped 4.9% to Rs 70.55 after the sugar maker said first quarter net profit plunged 69.47% to Rs 23.37 crore.

Spicejet Limited tumbled 12.8% to Rs 48.65 after the airline company reports the purchase of low cost airline by Sun TV promoter Kalanithi Maran may face central government investigation.

Infosys fell 2.2% to Rs 3,046.35 and Tata Consultancy Services dropped 3.1% to 1,148.10. DLF dropped 2.8% to Rs 237.20.