First year of UPA II: The clock has turned full circle

Last year in May, UPA II was given the mandate to run our country for the second innings. The markets greeted the new government with a 'thumbs up'. Both the Sensex and the Nifty, that were languishing at lower levels, hit circuit breakers on the eventful day of declaration of election results in 2009. It clearly signalled the end of the bear phase and defined the new range for the markets, with 4500 on the Nifty as the base of this new range. The market after briefly dipping below this level in July 2009 has more or less traded above these crucial levels. There were lot of hopes and aspirations from the new govt. Have these hopes been belied? The clock has turned full circle in the past one year, and the markets are headed closer to the May 2009 levels.

An analysis of the first year report card of UPA II will be important for deciding the future trends of our stock market. The report card is a mixed bag of hits and misses. The biggest challenge before the Govt. last year was to bring the economic growth back on track in the midst of global turmoil. The govt. launched a series of measures to spur demand backed by consumer spending, and has come out with flying colours on the economic front. World bank has also acknowledged this fact, and has now estimated the growth of Indian economy at 8.75% for 2010. The fiscal deficit is a bit of a concern, but the bounty of 3-G spectrum auctions has eased the threat to a large extent. Inflation still continues to be a challenge, and rising oil and gas prices are not going to help matters too soon. A normal monsoon will, however, have a sobering effect on food prices. However, infrastructure spending has languished in the first year of UPA. New additions to rail and road infrastructure have slowed down. Financial deregulation has also moved at a slow pace, many important financial bills are pending before the parliament. Implementation of GST has been postponed to 2011.

But the biggest failure of the govt. has been on the political front. The govt. has not been able to combat the unreasonable demands of its crucial allies like Trinamool and DMK. It has taken some symbolic decisions like Telengana statehood, Women's quota but subsequently has transferred them to cold storage. These controversial issues are ticking time bombs for the stability of the Govt. Another major threat to the economy is the spread of the naxalite movement. The govt. has failed to form a consensus on this important issue. The inability of the govt. to hold prices of essential commodities is also a big negative of UPA II's first year report card. this is leading to a discontent amongst the masses and could be a setback for the stability of the govt.

The markets currently are in the grip of a negative sentiment. The sentiment is likely to improve in the last quarter of the year, provided monsoon is normal and prices come under control. It might coincide with some stability in the Euro zone. Equity markets will continue to languish for a couple of months, before resuming their upward journey. The out performance of India vis-a-vis the developed world will ensure that the markets prepare themselves for a decent up move in the last quarter of the year. Investors with a long term perspective are advised to accumulate stocks of Infrastructure, finance, pharma, healthcare and retail sectors on declines.