The Left parties created a political crisis by opposing the nuclear deal. Their objections, it seems, stem from ideology than rational thought about the future of India’s economic growth. The fact is the world is running out of fossil fuels, especially the light sweet crude that has powered its growth. Like all other countries, India will need to alter its energy mix and nuclear power is one element in this. Gas is the other, but is currently mired in a pricing imbroglio. Without adequate energy to power our homes and industry and to give mobility to our workforce, the hoped for double-digit economic growth cannot materialise and hopes of raising millions above the poverty line would be dashed. The Left, ostensibly pro poor, is negating that hope.
The market reacted, as it does whenever there is political uncertainty, with volatility, bouncing up and down like a drunk on a trampoline. Finally, when the Left parties indicated that they did not have any intention to topple the government unless it went ahead with the nuclear deal, the market went up 260 points on the last day to end the week up 283, at 14,424. The Nifty rose 82 points to end at 4,190 points.
The market’s response is, as always, a short term one. But the Damocles’ sword still hangs over the government’s head. The deal needs to be operationalised during George Bush’s presidency and cannot wait for political appeasement of myopic politicians. Not proceeding with it will mar India’s chances to be taken seriously as well as curtail its ability to grow.
It is likely that, once the monsoon session of Parliament is over, the government will go full out to operationalise the agreement, before Parliament next convenes for the winter session, when it will have to face a test of its strength. This gives it time to cobble together enough strength to carry on because none of the parties wants early elections. So, once the monsoon session of Parliament ends, the market should start moving up. The other main concern, that of sub-prime mortgage lending gone awry in the US, has been temporarily contained by massive fund injections. This, too, can resurface three months later.
{{/usCountry}}It is likely that, once the monsoon session of Parliament is over, the government will go full out to operationalise the agreement, before Parliament next convenes for the winter session, when it will have to face a test of its strength. This gives it time to cobble together enough strength to carry on because none of the parties wants early elections. So, once the monsoon session of Parliament ends, the market should start moving up. The other main concern, that of sub-prime mortgage lending gone awry in the US, has been temporarily contained by massive fund injections. This, too, can resurface three months later.
{{/usCountry}}The market, then, will remain volatile until the monsoon session is over, and, should then start moving up until Parliament next convenes. So it seems the market will rally in September-October and one should be getting lighter in that rally.