If crude oil doesn’t play spoilsport, the stock market could see a rally this week on the back of several government decisions that are seen boosting investors’ sentiment.
Last Thursday, the finance ministry allowed private provident funds to invest up to 15 per cent in equities and exempted developers of ultra mega power projects from paying any excise duty on equipment purchased for such projects.
Also, the Cabinet approved hefty salary hikes for the five million employees of the government, which is expected to boost demand for consumer goods ahead of festive season.
All of these, analysts said, would have a positive impact on the market, which slipped from a recovery track through last week.
The Bombay Stock Exchange’s benchmark index, Sensex, lost over 700 points, or about 5 per cent, through the past week, while the 50-share Nifty index of the National Stock Exchange fell nearly 100 points.
“Markets next week should improve,” said P.K. Agarwal, head of research at Bonanza Portfolio, a brokerage firm. “In case oil prices stay soft, we might even find Nifty taking out the strong resistance of 4,650-4,680 points.”
The decision to allow more PF money into equity is expected to contribute the most. “If a higher percentage of savings comes into the market, it would propel the market and will curtail volatility in the market,” said Anup Bagchi, executive director, ICICI Securities.
Currently, less than 5 per cent of the gross domestic savings are invested in stocks.
The regulator for the New Pension System, which applies to government employees who have joined after October 1, 2004, has shown interest in adopting the same investment pattern as has been allowed for private provident funds. It is also expected to be emulated by the Employee Provident Fund Organisation, which has recently allowed independent asset management companies to mange incremental contributions to its corpus.
“These are small but critical steps and will act as a stabilising force for the market in the long run,” Bagchi said.