The markets move on sentiments and subsequent liquidity in the short term whereas somewhere down the line fundamentals provide a reality check
India is voting to elect a new government at present. The new government will decide the direction the Indian economy
will take going forward. Foreign Institutional Investors (FIIs) generally prefer to invest in those economies which have a solid government with stable policies – thus providing long term visibility. Late in 2018, it seemed that Prime Minister Narendra Modi was losing his grip within the party as well as the spell he had on the electorate. The state elections further confirmed the feel that Modi-Shah combine was losing the midas touch. This was turning out to be a major concern as we were staring at a “Mahagathbandhan” bringing back memories of late 1980s and mid 1990s. Another possible scenario was Congress
led UPA eking out a majority, however, this too would have meant an overhaul of the NDA policies. Names of other prime minister hopefuls were also doing the rounds in case NDA managed to get a majority.
The terrorist attack at Pulwama
and the Indian offensive which followed turned the tables decisively for the prime minister and the BJP. The war cries ensured that nationalism was back at the forefront and people were wearing patriotism on their sleeves. The credit for saving the national pride and sending out a stern message that India will not cower down naturally went to PM Modi and he bounced back like a proverbial phoenix.
PM Modi got renewed confidence to sound the poll bugle building up on the new wave which was overpowering most of the dissenting voices. Even the questions raised on Rafale got muted in the din of nationalism. The achievements of the government have naturally been highlighted whereas there is absolute silence on job creation, state of the economy and agrarian distress.
move on sentiments and subsequent liquidity in the short term whereas somewhere down the line fundamentals provide a reality check. The next 4 weeks would be driven by poll expectations. The markets
are expecting Narendra Modi to continue as prime minister for the next 5 years and hope that his policies will provide ‘real’ growth in the next term. However, election outcome could stump even the best of the psephologists, as it happened in 2004 with ‘India Shining’. Most people in the markets
however, would like to believe it is different this time.
Taking a stand is important for an investor but one needs to be prepared for the outcome, if different. The bullish sentiment could continue till mid-May, after which we may see some anxiety ahead of exit polls on 19 May. If the results on May 23 disappoint the markets
with ‘Mahagathbandhan’ government, we could witness a sharp correction followed by a long winter. However, if it is a UPA government with Congress
in the lead, we would again see a correction which could sustain at lower levels waiting for the policy trigger from the new government. One should also remember that markets
have mostly performed well during Congress/UPA regime in the past except its second stint which was marred by corruption as well as the aftereffects of the global financial meltdown.
The most expected outcome of a Modi led NDA sewing up a majority in the 17th Lok Sabha, could get the markets
into a euphoric mode. However the euphoria may not last too long as ground realities may come back to strike. We may not have another ‘hope’ rally like what we saw between 2014 and 2017 but investors will wait to see the real results.
A good strategy would be to book partial profits before the exit polls and then use the euphoria after the results to book the balance profits. Thus, even in the event of an unexpected result, we would have enough liquidity to build up the portfolio once again after a potential crash.
Ambareesh Baliga is an independent market analyst