Trading in Indian shares had to be suspended Monday after they jumped by nearly 17 percent as dealers celebrated a clear victory for the Congress-led alliance. Analysts hope the election's outcome will pave the way for vital economic reforms.
AFP - India's ruling Congress alliance received a massive vote of confidence from the stock market Monday, with shares surging on the back of its election win and hopes for substantial reform.
As the outgoing cabinet met to tender its collective resignation ahead of the formation of a new government, the benchmark 30-share index on the Mumbai stock exchange soared more than 17 percent to 14,272.63, up 2,099.21 points.
The rise was so sharp that it triggered circuit breakers that automatically halted trading for the rest of the day to allow the market to cool down.
Analysts said the rally was the market equivalent of a standing ovation for the unexpectedly clear cut verdict delivered by India's marathon general election.
Confounding expectations of a close result and a fractured parliament, the Congress-led alliance won 261 seats at the weekend -- a mandate nobody had predicted when voting began last month.
The tally was just 11 short of the 272 needed to secure a parliamentary majority, leaving the alliance with a shortfall it can easily make up without cutting deals with demanding regional parties.
"This was the big bang event that investors were looking for," said Hitesh Agrawal, head of research with Angel Broking. "Political uncertainty has been completely eased with the Congress party emerging as the single largest party."
Congress alone grabbed 205 seats in its best showing since 1991, giving it the clout to push through a substantial reform programme.
Economists have long prescribed more liberalisation to pull in foreign investment as the best way to boost growth in India and alleviate poverty in a country where more than 40 percent of the 1.1 billion population live on less than 1.25 dollars a day.
"We expect the government to have greater flexibility to boost economic reform and growth from here on," Agrawal said.
Policy implementation by the outgoing coalition had been hampered by the demands of its many constituents -- especially the communist parties -- who repeatedly threatened to withdraw vital support unless their own agendas were catered to.
Voter support for the communists collapsed in the election, leaving the Left Front with just 24 seats.
"The most positive news from the elections is that the roadblock to reforms -- the communist parties -- were trounced," said Apurva Shah, head of research with brokerage Prabhudas Lilladher.
Fund managers expect the markets to surge by another 20 percent in coming weeks, against a backdrop of better-than-expected fourth quarter corporate earnings.
That would be welcome news for the new government, which faces an economy that is slowing for the first time in close to a decade as a result of the global recession.
Authorities estimate growth for the fiscal year just ended in March was about 6.5 percent after expansion of nine percent the previous year. They expect it lose more traction this year, slowing to around 6.0 percent.
Congress leaders continued Monday to discuss who they would invite to join their government, amid suggestions they might pick up the dozen spare seats they need from independents, rather than bringing in an outside party.
Following the cabinet meeting, Prime Minister Manmohan Singh was scheduled to meet with President Pratibha Patil, who was expected to ask him to form the next government.
During a meeting of the Congress Working Committee on Sunday, Singh stressed the immediate challenges facing any new administration.
"Singh said the new government is assuming office in the backdrop of a deep global recession and serious troubles in the immediate neighbourhood," senior Congress leader Janardhan Dwivedi told reporters.
"He said he was confident that the clear mandate would enable the new government to respond to these two immediate challenges effectively."
The volatile situation in neighbouring Pakistan, where government forces are battling Taliban militants, has been of particular concern to New Delhi.
Date created : 2009-05-18