Caution to prevail ahead of trust vote

Caution is likely to prevail on the bourses ahead of the government’s trust vote in parliament today, 22 July 2008. The government is seeking a vote of confidence in parliament in a special two-day session that began yesterday, 21 July 2008, after it was reduced to minority following withdrawal of support of Left parties early this month.

Trading volumes are likely to remain low as institutional investors will remain on the sidelines ahead of the outcome of the confidence vote. As per reports, the actual voting will take place at between 17:00 IST to 18:00 IST, which is after trading hours. Reports suggest that the government has a wafer-thin edge of winning the trust vote.

If the government wins the confidence vote it will continue to be in power. If the government loses the trust vote, the president could ask the prime minister to continue in power as a caretaker government. The Election Commission of India will then fix a date and mid-term polls will be held. Another possibility in case the government loses the trust vote is that the opposition may try to form an interim government before the scheduled May 2009 election. However, this is an unlikely scenario given that the Bharatiya Janata Party (BJP) has said it would prefer elections if the government falls.

A section of the market reckons that the government may push forward economic reforms if it survives the vote of confidence in parliament. There has been a virtual halt in reforms process in the last four years due to strong opposition to reforms from Left parties. Left parities had stalled privatisation of state-run firms, pension reforms, higher foreign limits in insurance and more liberal norms for foreign bank

Asian stocks were subdued today, 22 July 2008, as several major US companies, including American Express Co, iPod maker Apple Inc and cruise ship operator Royal Caribbean Cruises, disappointed investors with lower-than-expected quarterly results on Monday, 21 July 2008. Key benchmark indices in Hong Kong, China, South Korea, Singapore and Taiwan were down by between 0.1% to 0.7%. The Japanese market bucked the weak trend. The Nikkei 225 average was up 1.4%.

US stocks finished lower on Monday, 21 July 2008. The Dow Jones Industrial Average lost 29.23 points or 0.25% at 11,467.34. The tech-laden Nasdaq Composite Index lost 3.25 points or 0.14% at 2,279.53.

As per provisional data released by the stock exchanges, foreign funds on Monday, 21 July 2008, sold shares worth a net Rs 62.22 crore. Foreign funds purchased worth a net Rs 589.20 crore on Friday, 1 July 2008, data released by market regulator Securities & Exchange Board of India (Sebi) after trading hours on Monday, 21 July 2008, showed.

Meanwhile, a cause for concern on the inflation front is the uneven distribution of rains in this monsoon season so far which has raised concerns about some kharif crops. Though the Indian Meteorological Department (IMD) has estimated the cumulative monsoon rainfall till 15 July 18, 2008, at 6% above normal, rains have been scanty in southern peninsula, Maharashtra and parts of Gujarat and Rajasthan.

With inflation hovering at highest level in more that 13 years, the Reserve Bank of India (RBI) is expected to further tighten the monetary policy at its quarterly monetary policy review next week.

Crude oil rose more than $2 a barrel to $131.04 on Monday, 21 July 2008. Oil's rise came on the heels of its biggest weekly decline ever.