Expect reform to continue outside Parliament

Having avoided a knee-jerk reaction on account of the market holiday on Ganesh Chathurthi on Wednesday, the stock markets bore the brunt of the latest political crisis to hit UPA-II on Thursday. This was following the withdrawal of support by the Trinamool Congress after the Government refused to rollback the diesel price hike and FDI in retail earlier in the week.

Both benchmark indices closed in the red on Thursday with no clear end emerging on the ensuing political drama even as the TMC stated that its Ministers would tender their resignations on Friday. While the Nifty closed at 5,554, down 46 points, the Sensex closed at 18,349, down 147 points from their previous close.

Kishor P. Ostwal, Chairman and Managing Director, CNI Research, said: “Market will remain in correction mode till expiry. Political developments will weigh high on the market. Market will break 5,500 in next five sessions and we see expiry setting at 5,460.”

However, according to various reports put out by brokerage houses, the market impact of the present political imbroglio would be limited.

Threat to growth

In a report by Citigroup, Rohini Malkani said: “Earlier today, the Congress-run States have decided to raise the cap of subsidised LPG cylinders from six to nine and we could see a partial roll-back on diesel prices as well. However, we expect the Government to stand its ground on FDI in retail especially given the 'enabling clause' where the Government has left the option to invite multi-brand retail on the States.”

“However, other pending reforms relating to SEB's (State Electricity Board) approvals for projects are administrative in nature so less likely to create as much resistance. Nonetheless, continuation of political uncertainty would once again bring threats of slow growth and possible ratings action,” she added.

Sensex 19,000 intact

A report by Ambit Capital also stated that the implications for the stock market are unlikely to be significant.

“TMC’S pullout is good for TV channels and largely irrelevant for the rest of us. All of this is largely going to be a sideshow for the stock market which will rightly focus on what the Government is doing on issues of substance such as fiscal consolidation, tax exemption for FIIs, the coal-power-SEB mess, rather than the tactics of opportunistic regional parties.”

“We reiterate our Sensex 19,000 target, the same target that we have been pointing to for nine months now and stick to our strategy of ‘good and clean’ stocks with a greater weightage on cyclicals excluding banks.”

The report also highlighted the list of upcoming ‘non-politically sensitive’ triggers for the market that were likely to offset the current negative sentiment.

“We expect reform outside Parliament to continue. For instance, the final Parthasarathi Shome Committee report on September 30 seems likely to recommend scrapping of (Capital Gains Tax) CGT on stocks, SEBI is likely to announce a package of measures in the next couple of weeks and the Kelkar Committee report on fiscal consolidation is likely to be published in mid-October,” the report added.

manisha.jha@thehindu.co.in

(This article was published on September 20, 2012)
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