The victory of the United Progressive Alliance (UPA) government in the trust vote in Parliament today is expected to trigger a huge rally on Dalal Street tomorrow, with market experts expressing confidence that the government will bring in a slew of reforms.
"The markets will react extremely positively now, as the uncertainties on the political front has now disappeared. The UPA government, during the rest of its term, will push the reforms that could not take shape earlier. The market has got the perfect recipe for a good relief rally" Dilip Bhat, joint managing director, Prabhudas Liladhar, said.
Analysts believe that the southward movement of crude oil prices (it was trading about $4.14 below its earlier levels at around $126.9 on the New York Mercantile Exchange) will also help the positive sentiment.
They said this vote of confidence would mean clarity on the Indo-US nuclear deal, which has been in muddy waters over the past few months. The prospects of a nuke alliance would boost stocks in energy, power, and the capital goods sector.
Most analysts expected a 500-700 point rally in the Sensitive Index when the market opens tomorrow.
Also Read
"There is no doubt about a positive rally. The Sensex is expected to bounce back. The nuke deal will induce strength in our economy, and the institutional investors, both foreign and domestic will be on a huge buying spree tomorrow," Shashank Shekhar Panda, senior manager, Religare Aegon Mutual Fund, said.
However, a few analysts sounded sceptical about a sustainable long-term rally for the markets, unless other issues like inflation, domestic industrial slowdown, delay in monsoon, and the ongoing global crisis are solved.
"The political scenario has stabilised for the time being, but other ground realities like high fiscal and current account deficit will have its shadow over the economy in the coming weeks," said Vallabh Bhanshali, chairman, ENAM group.
"The immediate reaction might be positive, but a lot will still depend on the behaviour of international markets. The market still has about 1,000 points upside from its earlier lows, on account of short covering. So, the rally could just be temporary," said Hiten Sampat, head (institutional equities), Parag Parikh Financial Advisory Services.
"Even if crude comes down to $120 per barrel, the government may still find it hard to make up for the losses incurred by the public sector oil companies so far.
We are still not out of the overall crisis; UPA's win was just a part of the problem," Sampat added. "However, the FIIs will start pumping in money now, and the banking sector stocks will now see a sustained pullback."