India's markets seen relieved; PM to caretake finance

India's markets will likely react positively on Monday when a cabinet reshuffle sees the prime minister take on the finance portfolio, just days after the nation was rattled by the deadly attacks on Mumbai.

India's economy showed its slowest pace of growth in nearly four years in the September quarter, and its rupee and stock markets have been pummelled by the global financial crisis.

Now, after three days of attacks by gunmen in the heart of its financial capital, Mumbai, in which nearly 200 people died, analysts say security and confidence will be the top priority.

With Finance Minister Palaniappan Chidambaram moving to the Home Ministry following the resignation of the home minister, analysts say Prime Minister Manmohan Singh, architect of early 1990s economic reforms, is probably the man for the job.

"There are serious concerns on the economy and the big challenge is going to be rebuilding confidence of investors," said Mahesh Rangarajan, political analyst in New Delhi.

"And there is a greater confidence in Singh because of his midas touch."

India's financial markets stayed shut on Thursday as security forces battled gunmen holed up in three locations in Mumbai's financial district.

The benchmark share index .BSESN gained 0.7 percent to 9,092.72 points when trading resumed on Friday, with expiry of options contracts leading investors to buy back shares.

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The index has plunged 55 percent this year, with foreign investors withdrawing a net $13.7 billion as the global market turmoil widened, and equity analysts criticised Chidambaram, saying he had not managed to keep the economy stable.

"But probably markets should open in the positive," said Deven Choksey, chief executive of brokerage KR Choksey.

Bond yields fell on Friday, as dealers anticipated interest rate cuts to shore up confidence and bolster the economy.

The central bank has slashed its key lending rate by 150 basis points to 7.5 percent since the global crisis swept through India's markets in October and the benchmark 10-year bond yield closed down 2 basis points at 7.07 percent.

"The market continues to anticipate rate changes," said Arvind Sampath, head of bond trading at Standard Chartered in Mumbai. "We are expecting the 10-year bond yield to trade in a 7.07-7.12 range."

Only the rupee came under pressure, shedding 1.2 percent to 50.09/12 per dollar, not far off a record low of 50.60 set earlier in November.

"Whatever has happened over the last few days is pretty serious. The first priority has to be that," A. Prasanna, analyst at ICICI Securities, said.

"I think the market will take a more big picture view and it is a positive development only. Nobody needs to second guess the PM's credentials, in his ability to run the ministry."

With only a few months likely to go before national elections, analysts were sceptical whether much could be done to shore up growth, which slowed to an annual 7.6 percent in the September quarter, a far cry from the 9 percent seen in the whole of the 2007/08 fiscal year.

Some expressed concern with the security issue and whether the prime minister's focus would be distracted, but others said Singh has already been more involved in running the economy as the financial crisis deepened.

Source: Reuters