Market Awaits Upper Circuit on Monday

By Value Research

With the people of India voting in a major way in favour of the Congress-led UPA coalition, the uncertainty has lifted. And, from the looks of it, for the long term. This stems not from the fact that the Congress alone is seen as market-friendly, the same applied to the BJP. But by giving a large enough majority to the new ruling party in the Parliament, the voters have in fact given it enough leeway to implement major projects and take difficult decisions that till now were being derailed by recalcitrant coalition partners, thereby paving the way for moving markets in a significant manner.
Whether it applies to the economy in general or a specific sector, the result will go a long way in lifting the mood of the market participants. The possibility of a fractured mandate being given was dismissed by the markets on Friday itself when the Sensex gained in excess of 300 points. The theory being that the Left and Third Front would not amount to being big power brokers who could affect the policies of the new government. So, either way, Congress or BJP, the markets considered themselves to be in a win-win situation and the braver among the market participants put their money where their thoughts were to be the first to reap the benefits. And expectations are that on Monday there will be another surge.
As a fund manager, an inveterate bull, Samir Arora of  Helios Capital said in an TV interview, "Last year was a black swan for bulls, this year is a black swan for bears."
Commenting on possibilities, a leading fund manager said that, "Nobody can stop the market on Monday. Without Chidambaram and the Left, markets will be unstoppable" – the former finance minister and home minister in the current dispensation was trailing very badly in his constituency, putting a big question on his future participation in the new government.
There is a rationale for a particular long-term policy direction that the new government will have to take. Its strategy will have to include a few must-do measures that stem from the decisions and programmes that were implemented by the Manmohan Singh-led UPA government and these can be amongst the biggest growth drivers overall.
Among these, two are at the top. The National Rural Employment Guarantee Scheme (NREG) put money in the hands of the poorest people while the farm loan waiver freed the farming community from a back-breaking load. Together, these wrought a mass-scale change in the lives of the common man.
Nilesh Shah, Deputy-Managing Director, ICICI Prudential, has a long-term perspective on this: "This government will have no choice at all in this respect. The Congress and its UPA constituents have succeeded in coming back to power because of NREG and farm loan waivers. To fund these extremely financially draining programmes, Congress will need to generate funds and to do that they will have to pump up the economy. If Manmohan Singh can repeat the successes of 1991, the market attaining a 21,000-point high by 2010 cannot be ruled out."
Another positive that will stem from this huge win looks inward too. There is a huge likelihood of the markets getting their push-upwards pressures from domestic sources. The market rally over the past few months has generally been put at the door of the foreign institutional investors. This may well continue, this time powered by the domestic investors too.
DBS Cholamandalam Asset Management Ltd, CEO, Sanjay Sinha says, "The market rally may well acquire local credit from this win. Reason being that a great opportunity has been thrown up for disinvestment. While there was an inexplicable slowdown by the Manmohan administration on this aspect, yet this is a great new opportunity. The likelihood of a policy encouraging disinvestment will release huge amounts of resources for the government to tap to carry out many much-needed infrastructure boosting plans as well as generate many other connected positives. It will have a cascading effect on an innumerable number of sectors that will positively impact the economy in various ways. Expect a 6-to-8% jump in markets on Monday. By the end of 2009 Sensex may well be at 14,500."
Another policy direction was laid for the new dispensation much before the elections. With the global financial crisis affecting adversely the way people spend, making most of them stop purchasing to a large extent, there was a big help from an unlikely source in India that kept boosted consumption by keeping demand strong. That was the demand from rural India, giving every sectoral component of the Indian economy a boost. This strong rural demand kept most of the economic indices from showing up in a worse light. The government will need to create a better infrastructural reach and for that spending again becomes a priority, as any negligence on this front could bring a huge chunk of Indian corporates down, especially as the demand growth in cities is at saturation point. With the global meltdown still wreaking havoc across the world and in India too, this particular constituency of the Indian economy will have to be nursed to higher levels. And with most governments looking to spend their way out of the slowdown, this will create huge opportunities for infrastructure projects, which will have a positive rub-off on all the sectors of the economy, boosting both demand and supply, which will probably, be successful in halting the slowdown and putting the country back on the path of notching up high growth figures again.