ELECTION 2009 INDIA CARNIVAL AND STOCK MARKET
Election is like big carnival in India with entire population from all walks of life gets swayed by it. There are colors and flood of money flowing. Everything comes to stand still. School, colleges and offices close on voting day.
In India election process is held in multiple phases. 2009 election will be one month extravaganza coming to an end by 16th may 2009, when one will be able to know about the victor and the vanquished. The outcome of the election will also determine the development trajectory of the India incorporate.
ELECTION OUTCOME AND INVESTOR:
India, the world`s largest democracy with an electorate of more than 700 million voter, goes to the poll in April –May 2009. We believe 2009 election will throw up the hung parliament with fractured mandate. As long as BJP or a Congress led alliances is in power, investor will likely be reassured of stability in terms of government as well as policies.
If a Third Front comes to power, it will create uncertainties in the mind of investor on the development and policies front. Any Third Front government won`t be getting investors vote of confidence.
Indian election is taking place in back drop of global economic turmoil. The domestic growth stories of the past years have vanished. Capitalism is under siege and private assets are being nationalized worldwide. India has domestic issues like growing terrorist attacks, law and order situation, religious fundamentalism on rise, problem in neighboring country Pakistan and many more that will be the key issue that will dominate the election.
The world will be closely watching the development. The composition, Utterances and deeds of the next administration will be critical to the direction the nation takes and how the outside world views the country. Will the next government carry forward the broad policy direction which began in 1991 and push forward with the unfinished reform agenda?
YO –YO SENSEX IN 2004 ELECTION:
ELECTION AND STOCK MARKET:
Returns from the past seven to eight elections have no exact set pattern. The returns in the run up to the elections have been lackluster. Market generally in all the occasion has shown range bound trading or sideways movement. Twelve month return post elections have been positive on four occasions and marginally negative on two occasions. Years when government took bold steps or the mandate swayed in favor of one party has raised the hope of investors and hence good returns were seen. 1984, 1989 and 1991, the market rallied in the first year of the government.
After 1996 a significant change has been on the political front in India i.e.; beginning of coalition era. The returns in these times were very moderate as the mandate was clear. The other reason could be Asian crisis, nuclear test, Kargil war, Dotcom bust.
Election event when market showed significant movement:
|1984||Indira Gandhi got assassinated; Rajiv Gandhi came to power with overwhelming majority. Market gave thumbs up.|
|1989||VP Singh became the PM. A massive drive against corruption in the government was taken in good way by the investor.|
|1991||Congress came to power after the assassination of Rajiv Gandhi. Market reacted positively.|
MARKET RETURNS BEFORE AND AFTER THE ELECTION:
|YEAR||%RETURN BEFORE ELECTION||% RETURN AFTER ELECTION|
|1 MONTH||3 MONTH||12 MONTH||3 MONTH||6 MONTH||12 MONTH|
GLOBAL MARKET AND INDIAN MARKET PERFORMANCE DURING ELECTION 2004:
NEGATIVES FOR MARKET 2009:
Earning downgrade in next 2-3 quarter.
The ongoing government is like a caretaker government with no fresh proposal and budget will be placed by the new government in power.
Stability and ability of the government cannot be judged at this point.
Fiscal deficit is high at 5% of the GDP.
Indo –Pak relationship hits new low.
Index heavy weight like RPower, Suzlon, JP Associates plunged by more than 75% from the peak. Many of these stock compositions of the index do not have 5 years standing in the market.
POSITIVE FOR MARKET 2009:
Sensex trading at 9x to the expected 2009 earnings.
Falling commodity price will ease input cost of the industries.
Government policies to boost the economy.
Inflation at record low.
Lower crude price.
As interest rate in developed economy is record low, India could attract investment.
As the new government settles down and the reform that was taken up by the previous government is carried forward, we believe market will again resume its bull run in the second half of the 2009. We also believe the era of coalition is here to stay and market will not be affected as long as it is seen that the coalition is stable and there are no expectation of major policy reversal.
However if the Third front comes to power, the market is likely to taste another low.
Our small endeavor will help you understand market in better way.