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Twenty-one years after initiating landmark economic reforms that unchained India's growth and led to nearly 9 percent annual growth rates, India's Prime Minister Manmohan Singh is once again fully in charge of economic policy.
Last month, Singh took charge of the finance ministry and called for a revival of "animal spirits" in the economy. The government recently began reviewing its policies on preventing large supermarket chains from entering the country.
Singh's new dual role as both Prime Minister and Finance Minister, and his recent rhetoric aimed at boosting confidence in the business community, has reignited hopes for stalled reforms in Asia's third-largest economy.
The market has reacted positively, helping to reverse the fall in the battered Indian rupee and providing a lift to the country's stock market. The benchmark Sensex Index has risen 3.5 percent, while the rupee has appreciated 2.2 percent against the dollar, coming off record lows hit last month.
Singh, who gained credibility during his five years at the helm of India's Finance Ministry starting in 1991, has been more recently known for his role as the leader of a government that has flip flopped on policy, failed to initiate reforms and been embroiled in a number of corruption scandals.
Reforms introduced by his government in recent years, including opening up the airline and insurance industries to overseas investments, as well as measures to improve the government's fiscal position through lowering fuel subsidies have stalled due to opposition in parliament. In many cases that opposition has come from members of the ruling coalition.
Many Indian politicians fear that reforms will alienate the country's largest voter base made up of farmers and lower-income rural residents.
However, Jagdish Bhagwati, former advisor to the Prime Minister, says recent electoral defeats for the ruling Congress Party, will motivate politicians, scared of losing in national elections in 2014, to push through stalled reforms.
"I'm pretty optimistic that politics will work out in such a way that we see the handwriting on the wall - all the guys who have been holding up further progress will give in, otherwise they don't get elected. They have to make an honest living like the rest of us," Bhagwati said.
Deutsche Bank's Baig adds that the deterioration in growth and weakening of the government's fiscal position will force policymakers, previously opposed to reforms, to support them.
What was good for the economy - reviving growth and cutting the deficit - has now become potentially good for politics. The political and economic incentives are becoming aligned," he said.
Rajeev Mallik, senior economist at CLSA, however, says while he expects a few reforms to be pushed through, investors shouldn't expect a "born-again government" that is going to turn the economy around.
"The challenge in India is the implementation uncertainty because there are always political calculations involved," he said.
Bhagwati agrees that reforms are unlikely to be as aggressive as those put in place two decades ago.
"In 1991 we had a balance of payments crisis, we ran out of forex reserves. (The) crisis had a big persona and had a huge multiplier effect. So when he (Singh) was reforming the system he could do so without excessive resistance," Bhagwati said.
Economic growth in emerging markets slowed in the April-June quarter because of weakness in the manufacturing sector as well as below-trend expansion of the services sector, an HSBC survey said.
The HSBC Emerging Markets Index (EMI) slipped to 53.0 in the second quarter of this calender year, from 53.6 in the January-March period, as a relatively better performance from the services sector was offset by only modest growth in manufacturing in the emerging market economies.
Among the big-four emerging markets, expansion in Brazil and China was lower than India and Russia.
While Brazil and China saw new export orders decline, India and Russia witnessed rise in export orders. Expansion were also seen in Turkey and South Korea.
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UBS upgraded Indian stocks to “overweight” citing attractive valuations compared with growth markets in Southeast Asia and an improving trade balance that could help improve domestic liquidity conditions.
Although the investment bank warned the country still faces a number of challenges, including politics and potential problems in the balance of payments, it recommended investors continue to bet on India. “We think the risk is worth it - that either improved risk appetite globally helps lower domestic rates, or that in the coming months an improving trade balance does the same,” UBS said.
“As such, we think liquidity will improve and by interacting with sensible earnings estimates (that have as much risk as elsewhere in the region in our view) and attractive valuations, should help India perform better in relative terms,” it added.
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STOCK MARKET ON VERGE OF BIGGEST BULL RUN OF LIFE TIME IN HISORY
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Nifty....Today Face Resistence at......5285...5340...5398
Nifty.....Today Support at ....5235...5175...5115
Nifty Range...4200--------6600
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OUR 1 TGT HIT NIFTY 5350 OUR 2 TGT ALSO
DONE 4850 NEXT 4600/4200
DONE 4850 NEXT 4600/4200
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