The stock market has moved up sharply in the last four trading sessions, but opinion is divided on how much of the move is due to the market believing the government will survive the trust vote and how much of it is due to lower crude oil prices.
One way of finding that out is to check whether India has outperformed other
markets during the recent rally. Markets of most countries, with the exception of commodity and oil producers such as Russia, Brazil and West Asia, have been affected by the rise in oil prices. As a result, most markets have moved higher in the past four trading sessions when oil declined.
For instance, the Shanghai Composite index is up 5% over the period, as is the Taiwan stock market index. South Korea’s Seoul Composite index is up 4%, while Hong Kong’s Hang Seng index is up 6%. The US markets, which first started the uptrend, saw the Dow Jones Industrial Average moving up 5% between 15 and 21 July.
The benchmark Sensitive index of the Bombay Stock Exchanges, or BSE, however, is up 12% in the same four sessions. It’s not unreasonable to say that at least part of the over 6 percentage points outperformance of the Indian market is because the market perception is that the government will win the trust vote.
That’s not to say there are no other explanations. India is one of the worst affected by rising oil prices and its markets had consequently been sold off the most. So any fall in oil prices should lead to a higher bounce. But note that the Chinese market, which has fallen even more than India’s, saw a much lower bounce. On Tuesday, with oil prices holding firm, most of the Asian markets except Japan were in the red, in marked contrast to the Sensex.
How much of this bounce is due to the belief that the government will push through reforms if it survives? The talk is all about banking, insurance and pension reforms and the BSE Bankex has benefited the most in the past four trading sessions, moving up a whopping 22.7%. It’s followed by realty, capital goods, power and FMCG indices, all up around 14%.
That gives the impression the market is inclined to give some weight to the reform talk, although it’s true that banking, capital goods and realty were the most beaten-down sectors and hence, were ripe for a rebound. The hope that lower oil prices would cool inflation and not lead to further monetary tightening must also have contributed to the rally in bank stocks.
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