Business Standard

Brokerages hopeful on progress despite TMC jolt

Difficult reforms hit but government will survive, say experts, pushing ahead with administrative measures

Related News

Hopes of further reforms have started to diminish among stock market participants after the Trinamool Congress (TMC) said it was pulling out from the Congress-led United Progressive Alliance (UPA) government.

The are not expecting the government, technically reduced to a minority, to fall. Experts say it would be difficult for the government to push ahead with reform measures, such as allowing foreign direct investment (FDI) in sectors like insurance. However, such as implementation of the Shome panel report and the debt recast of state electricity boards (SEBs) are possible.

“The decision of a member of the ruling coalition to pull out of the government in protest against recent reforms may scuttle the market’s hopes for more reforms,” said in its India strategy report. “The reality of Indian politics will demand a more subtle approach to reforms and perhaps even populism.”

What does TMC's withdrawal from UPA mean?
  • Might scuttle market’s hopes for more reforms
  • No immediate risk of the govt falling
  • Sell low-quality high-beta stocks in the current rally


  • Does not foresee govt falling in near term 
  • Continues to maintain stance of ‘buy on dips’ 
  • Exit has actually created space for continuation of reforms 


  • Implications for stock market unlikely to be significant
  • Reiterates 19,000 target
  • Expects reforms outside Parliament to continue


  • Low probability of govt falling, as few parties ready for elections
  • Pending reforms of administrative nature likely to create less resistance
  • Political uncertainty would again bring threats of slow growth and possible ratings action

Experts believe there is no immediate threat to the government. “The ruling coalition will have 254 seats in the Lok Sabha (out of 545) post the TMC’s exit and will probably be in a position to stay in power with the support of regional parties such as the SP and BSP,” said the Kotak report.

However, the changed scenario could mean that take a back seat. “This ordeal brings to light some challenges of a coalition government in terms of satisfying different constituencies while pushing through difficult reforms. However, pending reforms relating to and approvals for projects etc are administrative in nature, so less likely to create as much resistance,”added a report by Citigroup. “Continuation of political uncertainty would again bring threats of slow growth and possible ratings action.”

The Bombay Stock Exchange index, Sensex, on Thursday ended at 18,349.25, down 0.8 per cent or 146.76 points, its biggest single-day fall in a month. Reacting to TMC's withdrawal, the Sensex opened more than 200 points lower and remained volatile through the day. Weakness in the Asian and European markets also dented sentiment.

Mumbai-based Ambit believes Parliament would continue to remain dysfunctional in the coming year but reforms outside it would continue. The domestic broking firm expects the government to be able to proceed with measures like the final Shome committee report and removal of capital gains tax. It also expects the Kelkar committee report on fiscal consolidation to be published in mid-October and see a package of measures being announced by the Securities and Exchange Board of India. Ambit on Thursday reiterated its Sensex target of 19,000 by December. Domestic brokerage Edelweiss believes the government will be able to take its reform process forward after the TMC’s exit.

“The fact that the government has been reduced to a minority is seemingly negative but in our view, the TMC’s exit from the UPA has actually created space for continuation of reforms. We do not anticipate a reversal of recent reforms, beyond a symbolic partial roll back of the fuel price hike,” it said in a note to its clients, advising them to buy whenever the market corrected. The broking firm feels the coming months would offer several opportunities to buy, given the political uncertainty.

Read more on:   

Read More

Fund managers divided on high beta preference

Riding high on the crest of the reforms wave, the markets touched their highest closing levels since July 2011 during the week under review ...

Quick Links


Market News

Adani stocks led the way in Samvat 2070

Ambani brothers, JSPL the bottom three in market-cap growth

Raising the output key to Cairn India's prospects

With crude oil prices benign, increasing oil and gas production is crucial to drive growth

Biocon sees muted quarter, lacks immediate triggers

Reduced exports to West Asia & North Africa, capacity constraints affect sales

Exchanges plan stake sales in depository arms

NSE in talks with investors for offloading stake, BSE considering an IPO; to do so before April

Many listed firms had same auditors for over 10 yrs: IIAS

Proxy advisory body Institutional Investor Advisory Services India (IIAS) has called for periodic rotation of auditors and capping their tenure ...

Back to Top