After a sustained slide through several weeks, the stock market has lately begun to look up amid easing crude prices and reports that corporate earnings in the April-June quarter might not be as bad as expected earlier.
Sustaining that rally, market players and business executives say, would now depend much on what happens to the trust vote that the UPA government seeks on Tuesday.
“The confidence motion holds a lot of significance for the market as a number of economic reforms are expected over the next three to six months,” said Sudip Bandyopadhyay, CEO, Reliance Money. “Market has high hopes and it can go for a short-term rally if the government wins the trust vote.”
After touching a 15-month low, the 30-share Sensex of Bombay Stock Exchange has risen more than 10 per cent straight through the past four trading sessions.
Prime Minister Manmohan Singh is widely expected to push ahead with several market-friendly measures such as raising the foreign investment limit in the insurance sector, setting off a second round of liberalization in the banking sector and allowing private players into management of pension funds.
Progress on this front had been stalled in the past by the government’s leftist allies.
In case the government loses the trust vote, “it will lead to uncertainty in the market in the short term as people will tend to keep away,” said Anup Bagchi, executive director, ICICI Securities.
Most business executives, however, expect the government survive.
“I personally feel Congress will win and the nuclear deal, in all probability, will go through,” said MN Chaini, president of Indian Merchants' Chamber.
A survey of 400 CEOs carried out by business chamber ASSOCHAM said 72 per cent of the respondents expect the government to sail through in a closely-contested show of strength with opposition parties.
That said, many factors affecting the longer-term prospects for the market and confidence among businesses are outside the control of the government – especially global crude prices and inflationary pressures.
Therefore, it may take much longer for business confidence to return to the robust levels prevailing just about a year ago.
It is also not clear yet that a win for the UPA in the trust vote could guarantee political stability. Many political observers believe, the prime minister could still dissolve parliament and go for fresh elections ahead of time.
“I think the business fraternity wants stability in these difficult times so that issues like inflation and others can be sorted out,” said Jawahar Goel, managing director, Dish TV.