Rally to gain strength as government retains power, oil falls

The market is set to extend solid gains registered over the past four days after the Congress-led United Progressive Alliance (UPA) government late on Tuesday, 22 July 2008, retained power by winning trust vote in parliament. The end to political uncertainty following the trust vote will boost share prices. The government had sought trust vote after Left front early this month withdrew support. A further fall in oil prices and firm global markets will also aid further upmove on the domestic bourses.

The Indian stock market had surged sharply in the past four days ahead of the trust vote on expectations that the government will win the vote. Sensex jumped 1528.4 points or 12.15% in last four trading sessions to 14,104.20 on Tuesday, 22 July 2008, from its close of 12575.80 on 16 July 2008.

As per provisional data released by the stock exchanges, foreign funds on Tuesday, 22 July 2008, sold shares worth a net Rs 597.35 crore. Foreign funds sold shares worth a net Rs 111.90 crore on Monday, 21 July 2008, data released by market regulator Securities & Exchange Board of India (Sebi) on Tuesday, 22 July 2008, showed.

A section of the market reckons that the government may push forward economic reforms given that it has retained power without the support of Left parties. 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

But some analysts feel that a major big-bang push to reforms is unlikely as the government will focus primarily on bringing down inflation ahead of key state polls and parliamentary elections which are due in May 2009. Inflation is nearly 12% annually, its highest in more than 13 years.

A major relief for the Indian stocks and economy is cooling off of global crude oil prices from record high hit early this month. Oil was down 35 cents at $128.07 a barrel in Asia today, 23 July 2008, after falling more than $3 to a six-week low in the previous session as the threat of Hurricane Dolly to oil drillers and refiners eased, and concerns over faltering US energy demand increased. High oil and commodity prices have been a key cause for surging inflation and rising interest rates.

With political uncertainty over, the focus will now shift to quarterly review of the monetary policy by the Reserve Bank of India (RBI) on Tuesday, 29 July 2008 and Q1 results of India Inc. The results announced so far have been a mixed bag.

Fall in oil prices boosted US stocks on Tuesday, 22 July 2008. The Dow Jones industrial average rose 135.16 points, or 1.18%, to 11,602.50, while the Standard & Poor's 500 Index ended up 17.00 points, or 1.35%, at 1,277.00. The Nasdaq Composite Index was up 24.43 points, or 1.07%, at 2,303.96.

Asian stocks were firm today, 23 July 2008. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up between 1.2% to 3.3%. The key benchmark index in China was almost unchanged.