Mumbai, Sep 16: Market pundits are of the view that political developments in New Delhi will decide the fate of capital markets, more than any other global factors, in the forthcoming week. The market will be keenly watching developments on the political front as the government wants the Indo-US nuclear deal to go through.
While the operationalisation of the Indo-US deal has been put on hold by the government pending the findings of a committee, it cannot be stalled forever. A flashpoint may come sooner or later.
The four Communist parties have 60 members of parliament (MPs) in the 545-member lower house of parliament. Prime Minister Manmohan Singh's government could fall or be reduced to a minority if the Left withdraws support, political analysts pointed out.
Yet, some analysts reckon that political turmoil arising from nuke deal will not impact India's basic economic fundamentals though some infrastructure projects may get delayed. India's economy is expected to post strong growth for a long period of time mainly due to favourable demographics. The annual inflation growth declined to a two-year low of 3.52 per cent in the week ended September 1 from 3.79 per cent in the week ended August 25, due to falling prices of pulses, vegetables, condiments and spices. Wholesale price index (WPI) stood at 5.34 per cent in the corresponding week a year ago.
''Further, a US recession is unlikely to impact India in a big way given that the Indian economy is driven by domestic demand.
Exports to US account for just about 2 per cent of India's gross domestic product (GDP),'' economists explained.
The Bombay Stock Exchange (BSE) Sensex rose 13.38 points or 0.09 per cent to settle at 15,603.80 in the week ended September 14, while the National Stock Exchange (NSE) S&P CNX Nifty rose 8.5 points or 0.18 per cent to 4,518 last week. The barometer index is now just 265.05 points away from all-time high of 15,868.85 it had struck on 24 July 2007.
''The near term trigger for global markets is US Federal Reserve's policy meeting on Tuesday (Sep 18). There are hopes that the US Federal Reserve will cut the fed funds rate by at least a quarter percentage point on that day. An aggressive rate cut by the Fed in the coming months, will inject liquidity which in turn may lead to a surge in inflow by foreign institutional investors (FIIs) in emerging markets including India. Meanwhile, strong domestic liquidity will support the market at declines. Domestic private insurance firms have been channelising money raised through unit-linked insurance plans (with a high weightage for equities),'' market analysts said.