 "Modi's business-friendly image will aid markets: C J George")
Indian markets can rally sharply in the next few years on positive triggers, says C J George, managing director of Geojit BNP Paribas. He tells George Joseph the markets feel Modi has a good chance of forming the next government at the Centre. Edited excerpts:
Do you attribute the current rally to the Modi factor?
Markets inherently hate uncertainty and always look for an ecosystem that delivers in terms of policy making and administration. The markets have been moving in the recent past with an expectation that Modi has a good chance of forming the next government at the Centre. Modi has a business-friendly face, which is considered favourable by the markets.
I do not think the market is over-reacting to the prospect of a Modi government. In fact, if it had, you would have seen the market go up further. The Modi government’s policies in Gujarat have been considered business-friendly by the market and this is the only reason for the market optimism. Our economic growth has fallen from 9.5 per cent to 4.5 per cent over a period of five years, which has been reflected in the market. As the economy was declining, there was a lack of investor confidence as well as consumer confidence.
If this confidence factoris reversed through a powerful trigger like an election result or a new government,there is a definite chance of the market sustaining this rally. Equity markets are known to deliver the highest return on investment than any other investment instrument historically. If we assume 15% as expected rate of return from Indian equities, from the level of 21,500 points of Sensex in early 2008,the index should have been 51,000 points right now to conform to the centuriesold reputation of the equity markets. If the business confidence is back in the economy, I won't be surprised if the market goes up to 60,000 points in next three to four years.
Can the markets sustain at these levels or go up further?
If this confidence factor is reversed through a powerful trigger like a favourable election result, there is a definite chance of the market sustaining this rally. Equity markets are known to deliver the highest return on investment historically. If we assume 15 per cent as the expected rate of return for Indian equities, from the level of 21,500 points of Sensex in early 2008, the index should have been 51,000 points right now to conform to the centuries-old reputation of the equity markets. If the business confidence is back in the economy, I won't be surprised if the market goes up to 60,000 points in the next three-to-four years.
Do you think that the communal issues will affect the economic management of thecountry? How can Modi lead his team effectively in a tensed society?
Communal issues per se do not affect the economic management of the country. However, if that leads to open conflicts, it will certainly derail the socioeconomic fabric of the society and hence the economy. Modi has something toshow at the moment which is the decade plus rule in Gujarat that is consideredrelatively peaceful.
Do you think that UPA-2 was a misfit for India? How do you rate Manmohan Singh asa prime minister?
If these questions are to be answered in relation to just the markets, theanswer can be clear as the GDP growth rate has been steadily coming down from 9.5% to 4.5% during the period. During this period, we have noticed multiple economic problems like high inflation, high interest rates, high fiscal deficit, high current account deficit and a much depreciated Rupee. Hence, for the market, the verdict will always be based on these issues.
If the Bharatiya Janata Party comes to power, what will be the impact on commodity prices?
The market doesn't expect significant changes on prices of commodities merely on account of any government change. Generally, the policies of both parties have not been noticeably different with regard to commodities..
Will Modi be able to control the price rise of petroleum products which was a major handicap of the UPA government?
Petroleum prices will continue to depend on international prices and hence themarket doesn't expect any Modi specific impact on the prices. However, there islikely to be further reduction in petroleum subsidy and to that extent theprices will generally reflect the cost.
Do you attribute the current rally to the Modi factor?
Markets inherently hate uncertainty and always look for an ecosystem that delivers in terms of policy making and administration. The markets have been moving in the recent past with an expectation that Modi has a good chance of forming the next government at the Centre. Modi has a business-friendly face, which is considered favourable by the markets.
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Has the market over-reacted in anticipating a favourable election outcome?
I do not think the market is over-reacting to the prospect of a Modi government. In fact, if it had, you would have seen the market go up further. The Modi government’s policies in Gujarat have been considered business-friendly by the market and this is the only reason for the market optimism. Our economic growth has fallen from 9.5 per cent to 4.5 per cent over a period of five years, which has been reflected in the market. As the economy was declining, there was a lack of investor confidence as well as consumer confidence.
If this confidence factoris reversed through a powerful trigger like an election result or a new government,there is a definite chance of the market sustaining this rally. Equity markets are known to deliver the highest return on investment than any other investment instrument historically. If we assume 15% as expected rate of return from Indian equities, from the level of 21,500 points of Sensex in early 2008,the index should have been 51,000 points right now to conform to the centuriesold reputation of the equity markets. If the business confidence is back in the economy, I won't be surprised if the market goes up to 60,000 points in next three to four years.
Can the markets sustain at these levels or go up further?
If this confidence factor is reversed through a powerful trigger like a favourable election result, there is a definite chance of the market sustaining this rally. Equity markets are known to deliver the highest return on investment historically. If we assume 15 per cent as the expected rate of return for Indian equities, from the level of 21,500 points of Sensex in early 2008, the index should have been 51,000 points right now to conform to the centuries-old reputation of the equity markets. If the business confidence is back in the economy, I won't be surprised if the market goes up to 60,000 points in the next three-to-four years.
Do you think that the communal issues will affect the economic management of thecountry? How can Modi lead his team effectively in a tensed society?
Communal issues per se do not affect the economic management of the country. However, if that leads to open conflicts, it will certainly derail the socioeconomic fabric of the society and hence the economy. Modi has something toshow at the moment which is the decade plus rule in Gujarat that is consideredrelatively peaceful.
Do you think that UPA-2 was a misfit for India? How do you rate Manmohan Singh asa prime minister?
If these questions are to be answered in relation to just the markets, theanswer can be clear as the GDP growth rate has been steadily coming down from 9.5% to 4.5% during the period. During this period, we have noticed multiple economic problems like high inflation, high interest rates, high fiscal deficit, high current account deficit and a much depreciated Rupee. Hence, for the market, the verdict will always be based on these issues.
If the Bharatiya Janata Party comes to power, what will be the impact on commodity prices?
The market doesn't expect significant changes on prices of commodities merely on account of any government change. Generally, the policies of both parties have not been noticeably different with regard to commodities..
Will Modi be able to control the price rise of petroleum products which was a major handicap of the UPA government?
Petroleum prices will continue to depend on international prices and hence themarket doesn't expect any Modi specific impact on the prices. However, there islikely to be further reduction in petroleum subsidy and to that extent theprices will generally reflect the cost.