Mumbai: The ruling United Progressive Alliance, or UPA, government’s victory in a trust vote Tuesday evening could result in at least a short-lived rally on the markets in anticipation of key economic reforms, say some analysts and experts.
The reforms, however, will likely happen after a lag, say these analysts who are looking for some policy announcements in areas such as banking, insurance and retail.
“If the government does win the trust vote, there is optimism that one could expect to see some progress,” said Rohini Malkani, India economist for Citigroup. Given the intense lobbying behind the trust vote, however, Malkani expects such reforms only after the political uncertainty is resolved.
“Some reforms, which were on hold since the UPA government came to power, can be expected,” said the chief executive of a domestic brokerage who did not wish to be identified.
Analysts also expect a significant fall in the markets should the UPA lose the trust vote.
The rally that will follow should the UPA win the trust vote, however, will be temporary and depend on inflation and crude oil prices, brokers say.
“The market rally could continue on UPA’s success, only if crude oil prices remain at the current level,” said Gagan Banga, chief executive of Indiabulls Financial Services Ltd.
Not everyone is convinced the UPA will focus on reforms should it win the trust vote. “I do not expect any significant policy reforms in the last year of the current government,” he said. A senior executive with a large global investment bank said that rising food prices and an eye on coming elections would force the UPA government to provide more subsidies.
The executive, who did not wish to be identified, said a UPA victory would bring some short-term cheer to the markets and that its loss, and any effort by various political parties to form a government with neither the Congress nor the Bharatiya Janata Party, the two main political parties, would result in a substantial fall in the markets.
The Bombay Stock Exchange’s benchmark Sensex index gained around 1.57% or 214.64 points to close at about 13,850 on Monday. The National Stock Exchange’s broader 50-stock Nifty index gained 1.64% or 67.25 points to close the day at 4,159.50. Sensex has now risen 1,274 points, or 10%, in three trading sessions. And foreign institutional investors, or FIIs, key drivers of the market, bought more stocks than they sold on Thursday and Friday.
The chief executive of a US-based investment bank feels that “investors will welcome the current government’s success in the trust vote,” and FIIs could also “buy” the potential reforms story.