Business

Markets give thumbs up to UPA’s win

MUMBAI: Stock markets gave thumbs up to the victory of the Congress-led coalition Government in Parliament, winning the vote of confidence, as the Bombay Stock Exchange 30-share sensitive index (Sensex) gained 838.06 points or 5.94 per cent to close at 14942.28.

Banking stocks led the rally with a gain of 9.99 per cent after Finance Minister P. Chidambaram stated that the focus would now be on greater economic liberalisation, including relaxing foreign direct investment (FDI) limit in sectors such as insurance, which the Left parties were opposing.

The 50-share NSE Nifty gained 236.70 points to close at 4476.80 compared to its previous close of 4240.10.

Among the broader indices, the BSE midcap gained 269.91 points or 5.05 per cent at 5615.94, smallcap 276.22 points or 4.23 per cent and the BSE-500 gained 320.14 points or 5.96 per cent.

Realty stocks gained 8.08 per cent and power 7.74 per cent.

“We think markets will see the outcome as positive in the short-term,” said Tushar Poddar of Goldman Sachs Economic Research India.

“Although markets were expecting the government to survive, the vote and the margin of victory removed the element of political uncertainty that has been dogging sentiment for some time.

“We think the outcome will also be bullish for the Indian rupee in the short-term, especially if it entails more liberalisation of inflows, and the divestment of government stakes in public sector companies.

The latter may also help somewhat in reducing the alarming increase in the fiscal deficit.” However, Mr. Poddar said that the fundamental drivers of macroeconomic weakness — very high inflation, slowing growth, significantly higher interest rates, and a rising current account and fiscal deficits — remain in place. “The news on the political front is incrementally positive.”

The government will now have an opportunity to pursue stalled reforms, given the departure of the Left-wing parties that had been opposing further liberalisation. The Indo-U.S. nuclear deal, in particular, should receive a firm push. Although sweeping reforms are not on the agenda, “we expect a number of administrative reforms to accelerate, such as the divestment of government stakes in public sector companies,” said Mr. Poddar.

The government may also propose contentious bills for Parliamentary approval, including on Pensions (enabling private managers to oversee pension assets, and invest in equity market), Insurance (increasing the FDI limit to 49 per cent from 26 per cent), and Banking (enabling voting rights in proportion to shareholding). The coming month is likely to be critical if the government is to take advantage of the tail-wind and power ahead on reforms.

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