Government Back In Action – Expect A Gap Up Opening

Global equity markets in the preceding week succumbed to the selloff in equities and commodities due to growth prospects debt concerns in Europe and the closure of US stimulus occurring in the current month. Even Indian equities were not an exception with the benchmark indices remaining under pressure. Though there was some amount of positivity in the markets on Friday most of the investors on the street were waiting for cues on political front. Yes, the investors were looking for poll results for the State of Maharashtra and Haryana. It was a major test for the BJP Government which in the past had a poor track record in the above two states. With the Prime Minister making more than 37 speeches in these state elections, it was important for BJP to perform well. And if the Maharashtra and Haryana results are anything to go by it seems BJP has once again proved its mettle with Narendra Modi and Amit Shah Duo once again emerging winners.

If investor could recollect, we had categorically stated that if BJP fails to perform in the Elections the markets would correct more as it would mean less power in Terms of state- centre alignment and hence slower reforms process. With clear cut majority in Haryana and managing to form Government with allies in Maharashtra, we feel the Government would be able to bring in reforms on a fast track.  

Rather a few of the major one came out with Gas pricing being increased to USD 5.61 per mmbtu from the levels of USD 4.2 per mmbtu. Though the market expectations were at USD 8.2 per mmbtu, we feel the increased prices would be beneficial for the user industries and also incentivizes the explorers. While the gas prices were increased, owing to the steep fall in crude prices the Government has gone ahead with cut in Diesel prices by Rs 3.37 per litre. This new gas price hike will be effective from November 1, 2014 while the diesel price is already effective.

While the domestic scenario is looking good, the US markets also ended the preceding week on a strong note. While the Dow closed with gains of 1.63%, the S&P 500 closed with gains of 1.29%. Even the NASDAQ closed with gains of almost 1%.

Asian equity indices are also following the positivity in the US markets with leading indices moving in green zone. Nikkei is the biggest gainer with up Move of more than 3.34%. Hang Seng is also trading in positive zone with 0.81% gains and Shanghai Composite trading in green with gains of 0.27%. As regards the data points, Bloomberg news reported that China’s top Communist Party officials gather in Beijing this week for their fourth plenum, with an update on gross domestic product for Asia’s largest economy due tomorrow. China’s economy probably grew 7.2 percent in the third quarter from a year earlier, according to the median of 47 economists’ estimates compiled by Bloomberg. SGX Nifty is also trading with gains of 1.64 % (Up 131 points).

With clarity emerging on the Government reforms process such as more alignment of States and Centre for bringing GST and DTC we feel the positivity is here to stay. We are expecting the Indian equity indices to witness a gap up opening. We would not be surprised if the indices again surge in the later hours of trading as well.