Likely market reactions to trust vote

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Mumbai July 18:: CHOKSEY, MUMBAI:

"There is a 70-80 per cent chance the government will survive. And (stock) market is not viewing it too seriously for a move up. In any case, the general consensus is we are already bottoming out."

SCENARIO 2 - GOVERNMENT LOSES VOTE

RESULT: Government loses vote. Becomes caretaker government until early elections are called, likely by the end of this year. This will fuel political uncertainty at a time of high inflation, high interest rates, signs of fiscal strain, slowing growth.

REACTION: Likely short-term selling pressure on stocks, bonds and rupee. Later bond prices might gain a little on view new government could defer federal employee wage hikes until fiscal 2009/10. But political/reform uncertainty means market sentiment likely to remain subdued until elections are held.

COMMENTS:

A. PRASANNA, ICICI SECURITIES:

"It may be negative for the stock market and the rupee as it would spell uncertainty on the economic reforms front in the near term. But it may prove to be slightly positive for the bond market if the new caretaker government postpones the pay commission implementation."

SHUBHADA RAO, YES BANK:

"If they lose the vote, then bond yields would rise by 25 basis points, equity markets would fall by 500-600 points and rupee may weaken to around 43.25-43.50."

ARUN KEJRIWAL, KRIS:

"If the government falls, then there will be buoyancy again but after a brief period of pain, maybe a few hours or a few days."

DEVEN CHOKSEY, K.R. CHOKSEY: