Stock market prediction after UPA forming govt.

What could be a better time for market to soar up since the election results are out and UPA coalition have the mandate to remain in power for another 5 years. Adding sugar to their victory will be the fact that they will not have to coalesce with the parties whose political agendas were degrees apart from theirs. But since we are concerned with the Indian stock market, let us analyze as to what can be the possible effect of all what has happened till now in political arena.

Some people will be assuming that market will soar tremendously on Monday the moment market opens and this would be a good time to buy. Of course there should be nothing against this statement, but the question hinging upfront will be - how much of a rally can we expect from current results given the fact that on Friday itself market had rallied 300 points in BSE buoyant on the people's optimism that one of the two major parties will most likely to form a government at center. Whereas most expected UPA to win 220-225 it won 260 seat. What TV news channels and many Newspapers had predicted, UPA results have certainly surpassed those expectations. This gives us a good reason that market should correct itself by marginally adding another 6-7% to its points.

Another factor that can add to surging of market can be that this time around there shall be no unwilling alliance with left party's which will certainly help party to move in single a direction rather than spending most its time in deciding what is in national interest and what is not . This factor can account for another 1-2%.

Finally other secondary factors which can also arise from primary factors shall like that of FII returning to India would certainly contribute to market positive sentiments can lead to another 2-3%

On an aggregate market can move up to another 12% from its current level to a level of 13600 (+/-100 points). And quite probably this rally would happen in phases. Will take at least 2 days. Meanwhile we should keep over finger crossed and hope for the best as market has its whims and fancies.

IIP playing second fiddle

Stock market rallyed 475 points on tuesday despite IIP (Index of industrial planning) figures showed that it had actually dipped by 2.3%. Does this reflect too much of a optimism of what is lying ahead or it is that IIP figure isn't weilding that much power as it used to do. Lets analyse it but with an introduction of IIP construction.

IIP is a monthly index which was constructed with the main aim of providing us a picture of industrial production going in our nation and the responsibility of its compilation was assigned to the Central Statistical Organisation (CSO). For comparision purpose, base year for IIP is taken as 1993-94 where IIP is considered equivalent to 100 points. IIP is constitutes 538 individual items which are combined into 283 groups of items.

The all thoses items which makes up IIP figure with their respective weights (100) are divided into the three sectors shown as under:

Mining 64(1) 10.47
Manufacturing 473 ( 281 ) 79.36
Electricity 1 (1) 10.17
TOTAL 538 (283) 100.00

so how is IIP calculated
IIP is a simple weighted arithmetic mean of relative production calculated by using Laspeyre’s formula
I=Σ(Wi*Ri)/ΣWi,
Where I denotes Index,
Ri is the production relative of the i-th item for the
and Wi is the weight allotted to it based on Gross Output.

Now back to our real objective of finding why IIP's march 2009 figure had no effect on stock exchange on tuesday. Few of the answer could be as-
1. Base effect - ie IIP figure is depicting a very low figure which means even a slightest change in it leads to a very high percentage change.
2. ... or it could be that data reflected by March IIP number was already factored into the market . IIP is a composition of 17 sectors and each sector is given a dicerning look by equity investors.The moment there is some deviations in their performance their results are taken into account. And by giving factoring IIP into market would be like adding salt to your dish second time when in fact somebody has already added salt for its taste.
3. ... or it could be that election results are round the corner and whole country speculating optimistically especially for the corporate world, and probably that is the reason why IIP figures were overshadowed by election speculation euphory.

Of all the probable reasons 1st and 2nd reason seems to be more plausible ones since IIP figures in the past have mattered more when there was huge deviation in percentage terms with moderate base figure. Second is equlay good because IIP causes effect when it puts up a sudden surprise which indivual sector analysis was not explored.

Indian debt market --finally relaxing norms.

A sigh of relief for Indian CFO's since SEBI declared "no more stringent requirement for disclosures to enter into Indian debt market." For the starters it is to be stated that Indian capital market is predominantly captured by equities market , though majority of Indian citizens want to invest in debt market. Its no denying that debt market is still it in its infancy stage compared to European market and even US market which has been severely affected by Sarbanes-Oxley Act 2002. With virtually no liquidity in the debt market India, firms have no choice but to expose themselves foreign ECB (External commercial borrowings). Such dismal situation was largely present because of tough regulatory mechanism for discloser which did not go down with Indian firms. That was also the probable reason why throughout the year Indian debt market floated with only govt securities and govt bonds.

But this is set to change when sebi will clear few hurdles for companies, ,which has already gone through disclosed information about themselves during their IPO's, to proceed with their debenture issues . For the rest which is still not in equity market they will need to make disclosures. There is still long way to go and lot many committees like RH patil committees needs to be set up and help SEBI proceed in the right direction.