Indian Stock Market Will Move Higher On Economic Reforms BUT....

Current economic condition is suitable for equity market but recent bomb blast in different cities in India will depress the sentiments of FII & domestic investors; one can expect Indian market to fall on Monday, but recovery will be round the corner, most probably on the same day.

The last week has been quite good for the stock markets. The Sensex gained over 2,000 points in the last few trading sessions and touched the 15,000 mark on Wednesday after the UPA government won the trust vote.

There was an across the-board rally in the markets and both Sensex and Nifty added over five percent . Both domestic as well as foreign institutional investors (FII) remained net buyers in this rally.

Many positive news inflows were seen during the last week. Crude oil prices which were ruling at an alltime high two weeks ago have cooled down by around 15 percent from their peak levels of USD 148 per barrel to around USD 125 per barrell . Rallies pushed stock markets across the world.

The domestic inflation rate is also showing signs of stabilisation . However, the big trigger was the winning of the trust vote by the UPA government. There are huge expectations, especially on reform measures . These are some of the major reforms expected by analysts:

• Disinvestment: Offloading of minor stakes in some of the public sector units is one of the top most actions keenly awaited by many analysts and market men.
• Banking: Reforms in the banking sector is another area which is of huge interest for markets. Market analysts are keenly watching for any developments on this front such as foreign investors getting voting rights in banks in proportion to their equity share holding etc
• Pension fund bill: This is another hot topic under the lens of the government. Pension funds here currently invest only in government securities and therefore have very low returns. The pension bill talks about investing a certain percentage of the pension funds in the stock markets. Analysts expect that it will be huge boost for the markets even if a small part of pension funds are invested in stocks.
• Other issues pending government approval include hike in foreign direct investment limit in the insurance sector from 26 percent to 49 percent, and increasing the FDA limit in the retail sector.
• Relief rally Although the markets have moved quite a bit last week there are many negative news bits floating around. The rally seen in the markets last week should be treated as a relief rally (or bear market rally) after a long correction phase seen in the markets. Macro-economic concerns related to inflation and crude oil prices are still not completely tackled . Global markets have seen some relief rallies but there might be more negative news from the overseas markets.
• The Reserve Bank of India (RBI) may go in for another round of cash reserve ratio (CRR) or repo rate hike in their quarterly monetary policy review scheduled for tomorrow. Considering all these factors, it seems that the markets have already factored the good news in the recent rally.
• Investors should not expect any runaway rallies from the current levels, and should be cautious before making any fresh investments in the markets at these levels. In fact, investors sitting on profits can think of booking some at these levels.