BOMBAY, 28 April 2004 — Indian stocks posted yesterday their steepest fall in more than three years, wiping out more than $12 billion of shareholders’ wealth, on the back of election exit polls pointing to a possible hung parliament that sparked fears of a delay in economic reforms.

The Bombay 30-share benchmark Sensex index closed down 3.60 percent or 213.30 points at 5,712.28, the sharpest fall in 37 months. “Today’s fall is the sharpest since March 13, 2001 when the market fell by nearly four percent. (Since then), the market has been volatile and there have been sharp swings but not to this extent,” said Sanjay Bhide, technical analyst at KJMC Capital Markets. The last time the market plunged in such a fashion was when news of a major stock market scandal broke in Bombay.

Dealers said investors sold across all sectors yesterday as exit polls by television channels after Monday’s third and possibly decisive phase of polling showed an erosion in the fortunes of the reform-friendly ruling Hindu nationalists and raised the possibility of a hung parliament.

“Before the elections no one even talked about a hung parliament. It was just not expected and now suddenly that appears to be the trend. This triggered a panic reaction,” said Vijay Tilakraj, a dealer at KJMC Capital Markets. He said all sectors were hit as both investment funds and retail investors sold. “The only dark horse is Uttar Pradesh state where about 50-odd constituencies are yet to vote but otherwise it looks like it is going to be a mess with no single party or alliance getting a clear-cut majority,” he said. “This has triggered fears that though economic reforms would not be halted, they would be delayed - which itself is bad.” The elections — staggered over five stages — wind up May 10 and the results are due May 13.

Pre-election opinion polls suggested the ruling National Democractic Alliance (NDA), led by the Bharatiya Janata Party (BJP), would coast to an easy majority on the back of booming economic growth, leaving its opposition rival, Congress, trailing. The BJP aggressively pursued privatization, selling stakes in six state-owned companies earlier this year to raise more than three billion dollars. It had pledged to push ahead vigorously with reforms if was returned to power.

But the exit polls, while known in India to often be inaccurate, have shown the race may be tighter than expected, suggesting the NDA coalition could face some nail-biting moments to hit the magic 272-seat number needed to form a government.

Leading the market’s dive yesterday were index heavyweights such as Infosys, Reliance Industries, Hindalco, Tata Motors, Wipro, Tata Steel and Grasim. Of the 30 index stocks, 27 closed in negative territory.