The trust vote in Parliament on July 22, which will decide whether the UPA government will stay in office, will also determine the fate of the market in the near term.
The first two days of the forthcoming week will see a decent amount of volatility
If the Congress manages to prove its majority with new allies in tow, it will open up a Pandora's box of reforms, which had been kept on the backburner on account of resistance from the Left parties.
While there's hope for India Inc that the slow-moving economic reforms programme will be put on the fast track, there are views that even if it survives, the period for a major policy shift is too less with elections around the corner.
But the market largely seems to have accepted the fact that the government will sail through, which is why there has been a sense of euphoria that has set in over the last few days, say market experts.
On the other hand, if the government loses the vote, the country will face early elections and it would mean the probable demise of the landmark US-India nuclear deal. The market will be on tenterhooks again as political uncertainty will prevail, especially at a time of high inflation, high interest rates, signs of fiscal strain and slowing growth.
Shifting focus, the sharp drop in oil prices has offered some solace to the ailing equity market. Crude oil has plummeted after striking record highs above $147 per barrel last week. But experts are still unsure whether crude will stabilise at current levels but suggest that the speculation on oil prices is easing off.
………………On the other hand ……another view said…….
Even as the Congress-led UPA government faces a trust vote on Tuesday, the two-day rally in the stock market appears to suggest that investors are confident about the government’s survival.
But the sharp gains in the past couple of sessions have come amid cautious optimism, which was evident many times in the past too, when ruling parties were in trouble.
A look at the Sensex’s behaviour ahead of a no-confidence motion in Parliament that different governments faced since 1990 shows that the market did not witness any clear trend (sustained downward or upward movement), as investors mostly preferred to remain on the sidelines till political problems were resolved.
Notwithstanding the 1000-point rally in the Sensex in the past couple of sessions, there is uncertainty if the government will be able to survive the trust vote, say brokers. Besides next week’s political developments, the market will also be influenced by many other factors like crude oil prices, inflation and first quarter numbers, they say.
Friday’s upsurge was mostly because of a fall in oil prices. There is also a feeling that the government will survive and so the nuclear deal will go through. If oil prices soften further, it would help ease inflationary pressures, as India is a major importer of crude oil.
…………………Past history shows………….
In April 1999, the then BJP-led coalition government was in trouble as the AIADMK party withdrew its support to the government. The Sensex ended weak on most trading days during the month. It, however, gained sharply by 216 points on April 16, a day before vote of confidence. The Sensex slipped 246 points after the BJP lost the no-confidence motion by a single vote on April 17.
On April 11, 1997, the then prime minister HD Deve Gowda lost the confidence vote after the Congress withdrew support to the United Front government. The market gained on most trading days during the month, before ending with a gain of 35 points, or 1%, at 3,633.7 on the day of the trust vote.
Among other notable occasions of vote of confidence, Atal Bihari Vajpayee resigned before the confidence motion was put to vote on May 28, 1996. The BJP then could not prove the majority. The market remained week ahead of the vote of confidence. On November 7, 1990, VP Singh lost the vote of confidence after the BJP withdrew its support to the government. The Sensex recorded some gains ahead of the event, before ending 49 points up, or 3.7%, at 1,381 on the day of the vote.ET-
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