Indian markets expected to rejoice surprise electoral outcome

May 16th, 2009 - 4:44 pm ICT by IANS  

KPMG By James Jose
New Delhi, May 16 (IANS) Hoping for continuity in governance, stock markets in India are expected to rejoice Monday as the United Progressive Alliance (UPA) looked all set to return to power, after election results Saturday handed huge unexpected gains for the Congress-led coalition.

“The results will certainly have a positive impact on the markets as they were hoping for stability in the next government,” said Arvind Mahajan, executive director with leading global consultancy KPMG.

“Given that Left support may not be required this time, the Manmohan Singh government is expected to be more reformist than in the past,” Mahajan told IANS Saturday, referring to constant roadblocks when the Left parties were supporting the UPA from outside.

The 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE) had already gained over 300 points, or 2.53 percent, Friday - the last trading session before the weekend break - anticipating a stable government.

And with actual results showing much better poll performance by the ruling alliance and strong numbers for the Congress, sentiments were expected to remain positive Monday when trading resumes, said analysts.

“This is a clear mandate. The markets couldn’t have asked for anything better. Now the government can continue with its economic policy without interference from the Left,” said Jagannadham Thunuguntla, equity head at SMC Capitals.

In the run-up to the counting of votes, Friday had seen 12 out of the 13 sector-specific indices of the BSE end in the green, even as 25 out of 30 Sensex scrips closed with handsome gains.

Data available with the BSE also showed that unlike the past two elections, when markets had tumbled, the Sensex this time actually gained during the month-long run-up till Friday - up 1,226.02 points, or 11.2 percent, since April 16.

In October 1999, when the National Democratic Alliance (NDA) had returned to power, the Sensex fell 7.5 percent on fears that then prime minister Atal Bihari Vajpayee may not be able to hold the new coalition together.

Similarly in May 2004, on the eve of the UPA taking over the reins, the key index plummetted 15.7 percent as investors were rattled that the NDA - which by then was seen as investor friendly - would not return to power.

But this time the markets did not slip, though the sentiments remained cautious. And looking ahead, analysts felt the outlook was positive, although they also maintained that fundamentals will eventually play the decisive role.

“Since past few weeks, the markets were in a no-trading zone, moving in a tight range. But now there should be a breakout on Monday,” said Neera Jain, chief technical analyst at stock analyses firm CRN India.

“At this moment the markets are in an uptrend. Stocks are expected to further rise on Monday.”

Thunuguntla said it would take a little time for the markets to digest the news. “But a bounce can certainly be expected. In the next coming days, it will not be surprising to see anywhere between an 8-10 percent jump in Sensex.”

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