Indian stocks swung between gains and losses as investors await the outcome of state elections that may provide an indication of support for the government’s economic agenda.
The results of regional elections are due today after voting in five states, including Uttar Pradesh, the most populous. The northern state, with 200 million people, is the nation’s biggest political prize, electing about a seventh of lawmakers in parliament’s lower house. A strong showing would boost the Congress coalition’s ability to overcome setbacks triggered by graft scandals and protests, and aid its goal of pouring $1 trillion into revamping infrastructure.
“The government has significant political capital riding on this election and exit polls over the weekend indicate the results may be below market consensus, as the Congress Party’s showing could be bad,” Gautam Chhaochharia, an analyst at UBS AG, wrote in a note today. “The completion of the elections could be a positive catalyst as the government may accelerate implementation of key projects.”
Among Prime Minister Manmohan Singh’s plans are the opening of the retail industry to companies such as Wal-Mart Stores Inc. (WMT), an initiative halted in December amid protests over likely job losses. The Supreme Court last month scrapped 122 mobile- phone permits, whose sale in 2008 sparked India’s biggest corruption probe, and Singh failed to win passage in December of an anti-corruption bill.
Investors are also watching key policy announcements next week. The Reserve Bank of India reviews interest rates on March 15, a day before Finance Minister Pranab Mukherjee presents the budget. The central bank cut on Jan. 24 the amount of deposits lenders need to set aside as reserves for the first time since 2009, seeking to ease a cash squeeze, and indicated it may cut interest rates if inflation continues to slow.
The bank raised rates by a record 13 times from March 2010 to October last year to restrain price rises. Government data showed on Feb. 14 that inflation eased to the slowest in more than two years in January. Still, an 8.7 percent jump in oil prices last month fanned concerns persistent inflation and a widening fiscal deficit may curb the RBI’s scope to cut rates.
India’s fiscal deficit exceeded the full-year target in the 10 months through January. It may surge to 6.1 percent of gross domestic product this fiscal year, Nomura Holdings Inc. (8604) and Kotak Mahindra Bank Ltd. (KMB) forecast last week, more than Finance Minister Mukherjee’s aim of 4.6 percent.
The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange gained 0.4 percent to 5,303.15.
“Indian markets may be volatile over the next two weeks, with high crude prices not helping,” Chhaochharia wrote. “We remain positive on Indian markets based on improved policy and governance after the elections, monetary easing, and the earnings-cut cycle bottoming.”
The central bank may cut banks’ reserve ratio by a further 50 basis points on or before the March 15 meeting, he wrote.
Reliance Industries, owner of the world’s largest refining complex, retreated 0.9 percent to 791.25 rupees. Tata Motors climbed 1.3 percent to 277.65 rupees. Hindalco Industries Ltd. (HNDL), an aluminum producer, sank 2.7 percent to 135.4 rupees.
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