Watch Out For July 22

With the Sensex having reached levels below 14,000 many have a feeling that the index has completely bottomed out. Funds from abroad are not coming in while the high rate of inflation is forcing the domestic investor to put his money elsewhere. There are some who also feel that the Sensex will fall to lower levels perhaps around ten or eleven thousand.

This is why July 22nd is an important date. It’s the day that the present UPA government will seek a trust vote. If it wins then the Sensex will most definitely show a rise that should help it maintain an average of 14/14,500 for some time. The problem of course starts if the government loses the trust vote. Previous governments that have fallen because they were unable to get the required majority in the house have created an environment where the Sensex has fallen drastically and in turn become a nightmare for the intra day investor.

There is more on the line for India than just the government. There is the all important question of the nuclear deal which started this political instability in the first place. This deal is a huge impetus for Indian stocks trading in the energy sector to go through. Something that won’t happen if the government falls. There is also the US perspective which sees the deal as George Bush’s only foreign policy success.

The deal going through will open up the Indian market and make it favorable to FDI’s as well, If this government is to survive then it should have little problem in increasing FDI holdings in India to 49% which was the initial plan until it was stalled by the left parties. The increased FDI investment will most certainly propel the Sensex upward in the long run.

The small scale investor must view July 22^nd carefully. If the government were to fall than he or she must be prepared to take advantage of the falling Sensex especially in the first few hours after the trust vote. It is an excellent opportunity to pick up blue chip stocks at relatively lower prices. A fallen government has often sent the Sensex into a downward frenzy leading to frantic selling that has reduced the market value of many stocks which has in turn been a boon for buyers.

The opposite is of course true for the seller for whom the market is a bed of thorns if the government were to fall.

All of this will be a contradictory scenario if the government were to survive. The intra day trader can definitely use the surging Sensex to his advantage on the 22^nd once again in the first few hours after the vote. News that the government has survived will most probably lead to a surge in the markets. This is an excellent time for the short term investor to dump some of his unfavorable stocks and get a higher price than before.

It will be seen as a day that will be beneficial to either the bull or the bear. Though there is obviously more at stake for the intra day trader.

Nonetheless, the long term investor should also be able to capitalize.