INSTANT VIEW: Indian govt wins confidence vote

NEW DELHI (Reuters) - Indian Prime Minister Manmohan Singh's government won a vote of confidence in parliament on Tuesday, ensuring the immediate survival of the ruling coalition and a civilian nuclear deal with the United States.

Earlier, the opposition demanded the resignation of Singh after three of its lawmakers said they had been bribed to abstain from the vote.

The government won 275 votes against 256 for the opposition, parliamentary speaker Somnath Chatterjee said.

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COMMENTARY:

DEEPAK ACHARYA, FUND MANAGER, BoB ASSET MANAGER:

"It's good news for the overall economy and the financial market because the concern about political instability has gone now. Economic reforms should get a boost before the general election. The stock markets will see a rally tomorrow."

NEERAJ DEWAN, DIRECTOR, QUANTUM SECURITIES, NEW DELHI:

"It's good in the sense that there will be no political uncertainty for the next 7-8 months at least. They will try to do whatever little they can do in terms of reforms. They might take some steps for banking reforms. Of course, they cannot do much. I think the market has already discounted some part of it. Still we may see a 2-3 percent kind of rally tomorrow."

EARLIER:

ANDREW HOLLAND, HEAD,STRATEGIC RISK GROUP, DSP MERRILL

LYNCH, MUMBAI:

"The markets will be relieved, and now that there is no uncertainty, investors will turn to the fundamentals, like inflation and oil and the global markets. Foreign investors will look at how further reforms take place."

"The stock market is likely to go up by 1-2 percent in the morning, then we will go back to the fundamentals, locally and globally."

D.K.JOSHI, PRINCIPAL ECONOMIST, CRISIL, MUMBAI:

"I think it will be positive. The ability of the market to sustain depends on the variety of factors, including oil. The U.S. economy is getting into deeper weakness.

"The challenges before the government would be inflation control, preparation for the next elections and also political challenges of managing the new coalition.

"I think reforms will get done by chance. I don't think there would be any strategy to push particular reforms. Whatever is suitable might get pushed.

"I think privatization to me looks possible. Maybe some disinvestment. They will be interested in disinvestment because fiscal pressure is there.

"For big-ticket reforms, anyway we have to wait for the next government. There are enough headaches for the government to take care of."

AGAM GUPTA, HEAD OF TRADING AT STANDARD CHARTERED BANK, MUMBAI: "This is definitely a positive, and moreso they won by a decent margin. There will be a knee-jerk positive reaction in the currency market and the rupee may open at today's high around 42.58 per dollar and may even test 42.50.

"The next task for the government will be how much it will be able to push through on the reforms front. Stocks should start on a strong footing and bonds will also get bought. This is a positive for all the asset markets."

PRASANNA PATANKAR, SENIOR VICE PRESIDENT, STCI PRIMARY

DEALERS:

"It is more relevant for equity markets. The government will now have more wherewithal and demonstrable intent to fight inflation. Fiscal slippage to the tune of 250-300 billion rupees is expected. At some point of time, they will have to start coming in the market looking to borrow.

"From September onwards you can expect an additional borrowing of 40 billion (rupees) a month. In the run-up to auction, yields are trended higher. I think tomorrow the 10-year yield will stabilize around 9.12-18 percent."

A. PRASANNA, ANALYST, ICICI SECURITIES, MUMBAI:

"It is good for equities, I guess, probably currency also in the short-term. Bonds shouldn't react adversely in the short-term but over a period it is bad because it means the government would push through all their programs. So extra spending and borrowing will have to happen.

"After a short-term relief, the market may turn volatile because there are some uncertainties still.

"Ahead of the bond auction, bonds are going to be a bit cautious because the bidding will have to be done before the inflation and also the (central bank) policy.

"Tomorrow morning, the first reaction will be positive but it also depends on oil."

OLIVER STOENNER-VENKATARAMA, EMERGING MARKETS STRATEGIST,

COMINVEST ASSET MANAGEMENT, FRANKFURT:

"After this confidence vote, the question is how stable is the government to push through other much-needed reforms? The gains we have seen in the domestic stock market is a bit premature and we may see some disappointment soon on that front."

"The investment environment remains attractive but the short-term political outlook is uncertain. We need a strong Indian government because India and Brazil are in the driving seat for emerging economies in WTO talks and domestically, we need to see progress on economic opening including labor market reforms."

MARKETS:

Ahead of the vote, the rupee ended at 42.73/74 per dollar, weaker Monday's close at 42.68/69.

The 30-share index ended 1.84 percent up at 14,104.20 points.

The benchmark 10-year bond yield ended at 9.12 percent, above Monday's close of 9.06 percent.

BACKGROUND:

- Tuesday's vote was preceded by two days of often angry debate in parliament and days of frantic horse-trading as the Congress party-led ruling coalition and opposition parties battled for the support of a majority of lawmakers.

- The vote was triggered by the decision of communist parties, who had provided the government with a parliamentary majority since 2004, to withdraw support in protest at government moves to push forward the nuclear energy accord with the United States.

- The left argues the nuclear deal would undermine India's independent foreign policy and even its security. Critics say their stance is dictated by an ideological dislike of the U.S.

- The Samajwadi Party, a regional group with its power base in India's largest state and which had been at odds with the Congress party, stepped in to support the government.

- Prime Minister Manmohan Singh first agreed the pact with U.S. President George Bush in 2005. If passed, the deal is also expected to forge closer trade and diplomatic ties with Washington.

- The nuclear pact would grant India access to foreign nuclear fuel and technology, unlocking $40 billion in investment over the next 15 years, according to an Indian business lobby group.

- The deal has been criticized by some as granting India rewards it does not deserve, lifting a 30-year ban on sales of U.S. nuclear fuel and reactors imposed after New Delhi, which has not signed the Non-Proliferation Treaty, conducted a nuclear test in 1974.

- The deal still needs clearances from the International Atomic Energy Agency (IAEA) board of governors and the 45-nation Nuclear Suppliers' Group. Then it would have to go to the U.S. Congress for final approval.

(Reporting by New Delhi and Mumbai bureaus and Sebastian Tong in London; Writing by Mark Williams; Editing by John Mair)