Cong Issues Likely To Cast Shadow On Market

Capital market analysts unanimously agree that the Gujarat crisis, Sukh Ram scandal and the spate of CBI inquiries into former prime minister Narasimha Rao have all brought back politics as a frontrunner to decide the course of stockmarket movements.

The recent development in the Congress could turn out to be a positive factor as the party is likely to re-unite. The uncertainty on the political front that was dogging market sentiment for the past few weeks will be over as a result of this development. The market may react negatively in the short term, but long-term prospects look positive, an UTI official said.

 

However, many also feel that even in the long term, the market needs an economic trigger to witness more activity. Says Sanjay Agarwal, chief executive officer, Lloyds Securities: The upcoming elections in Uttar Pradesh and the ongoing inquiries of different politicians will cast a dark shadow over the markets in the next few months.

The market is expecting positive indications from the government. However, there is no cohesion within the government on the economic policy. We are waiting for an economic trigger from the government to revive the markets.

Marketmen have interpreted the development in Gujarat as a major setback for the BJP. This is likely to dampen spirits further in the market as a dealer at a leading institutional brokerage pointed out: The developments in Gujarat are a major setback to the BJP. Now, if the UF government collapses owing to some differences of opinion among the constituent parties, and mid-term polls take place, the chances of a hung parliament will increase.

Politics apart, marketmen feel there are other macro-economic factors which will decide the course of market movement and under normal circumstances would have pepped up the spirit in the market.

Says Vinay Kamat, head of research at JM Share & Stock Brokers: In the next few weeks, the rating of India by large foreign institutions will come up for a review, and India is likely to be placed in an investible grade.

Besides this, it is expected that there will be a further cut in CRR of one percentage point and corporate results are expected to be better. The only depressing factor would be the slowdown in the economy in terms of GDP growth. We expect a 6.1 per cent GDP growth.

Any further sops that marketmen would expect from the government will come only in the next budget.

Says Padmakant D Shah, a senior governing board member of BSE: We are facing a major financial crisis owing to scarcity of money in the market. The political uncertainty has added to the market woes. The government did not even touch the double taxation of dividend norm. The UTI official pointed out that the market need not expect any sop from the government till the next budget.

We will have to wait till the next budget even to expect something, he said.

The market is expected to bottom out by November or December. Adds a dealer at a leading institutional brokerage: It is expected that there will be a slowdown in major companies and a sell-off close to bottom, which is expected to be at around 3000-3200.

There is also a general concern expressed by marketmen that domestic savings are being diverted to debt and fixed-income instruments and that there is no interest in equities.

Says Ajit Ambani, BSE member: There is an overall slump in industries like building and diamond. The small investor's fascination for debt will be short term as this segment will also reach a point of saturation.