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Monday, March 9, 2009

Effects Of General Elections On Indian Stock Markets in 2009

Excerpts from news about effects of general elections in India and prospects of stock markets in 2009.

The general elections this summer will not only decide the next government of the country but also the mood and momentum of stock markets as the outcome of polls would be a more important factor than even the fundamentals of corporate.

According to an investor survey conducted by global financial services major Morgan Stanley, the results of the general elections would be the second most important driver for the Indian stocks in 2009, after the global market trends.

The poll outcome would be more important than corporate fundamentals and the country's fiscal and monetary policies, the survey found.

Experts and brokerage firms also agreed that the general elections, where an estimated Rs 10,000 crore would be spent and is being seen as an unofficial stimulus for the economy, would be a key driver for the stock markets going ahead.

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Geojit Financial Services' Research Head Alex Mathew said that the markets would react positively after the elections lead to a single party majority or a strong coalition forming the government.
According to HSBC, the stock markets will see a rally after the general elections if an alliance led by either Congress or BJP comes to power. However, it would be negative for the Indian stock markets if the next ruling alliance includes the Left parties, and even worse would be the case of a third front government or a hung Parliament, HSBC analysts said in a report.

In the survey conducted by Morgan Stanley, 51 per cent investors said that global markets would be "the single most important driver for Indian equities in 2009." This was followed by 21 per cent naming "general election results" as the most important driver for the stock market this year.

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About the elections, analysts at Morgan Stanley said that "a stronger coalition government could improve the growth outlook with acceleration in the pace of structural reforms such as privatisation and infrastructure investments."

"A weaker coalition government could add to the downside risks, slowing the pace of implementation of structural reforms," Morgan Staney noted.

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Terming election results and global development as two key factors for the stock market movement in 2009, it said, "If the global economy turns around, India will start faring better. However, elections in May will still hold the key to a sustainable recovery.

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