 "The electoral verdict and the Sensex")
‘The Economy, stupid!’... This was the tagline of the first successful Presidential campaign of Bill Clinton in the early 1990’s.
Perhaps it is because we are still a developing economy and not a developed economy that the frontrunner in the upcoming Indian general elections, the NDA and its campaign face, Narendra Modi, has focused on the ‘economic failures’ of the incumbent Congress-led UPA Government. But these barbs that state the obvious do not seem to be buttressed with any serious solutions beyond a state success model.
Yet, so disillusioned are the public at large and particularly beleaguered stock market participants with the UPA Government’s sins of commission and omission that even this shortage of quality in content is being overlooked. Hopes are also flying high about a much awaited stock market rally materialising should the NDA win 200 plus seats and pave the way for Modi to become the Prime Minister.
The Congress-led UPA has probably seen the writing on the wall by now and its limited cause too is not being helped by a confused campaign that seems to be going nowhere. The Congress bit the bullet in Delhi and is providing outside support to a popular AAP Government. Although it had the desired effect of sending the BJP into a tizzy, this support to the AAP unlike those to Third Front regional satraps in the past could prove very costly for it.
The AAP’s economic agenda, which it is in the process of formulating for its election manifesto has already been ripped apart and ridiculed by the BJP, the Congress and the highfalutin electronic English media in India who have criticised the month old Delhi state AAP Government of being populist.
Well, if populism involves taking on well entrenched mafias, providing water to the underprivileged and enhancing the billing transparency on power bills in Delhi, then what would you term the actions of both the UPA and NDA in its respective terms of nudge-nudge-wink-wink over the years at unpaid loans of ‘respected’ industrialists and entrepreneurs?
This act of felony is politely camouflaged under the management jargon of Non Performing Assets (NPAs) in the books of our banks. Just for the record, the number stands at a staggering Rs 1.6 lakh crore. I presume this is what constitutes good economics and governance ?
However, the worst fears of the BJP that AAP could hurt it in the general elections like it did in Delhi appear unfounded as AAP simply does not have the bandwidth as yet to gain too much beyond Delhi and the NCR region. Its announcement that it would contest a large number of seats in the general election has attracted all and sundry to the party including discredited businessmen and entertainers in the hope of getting a party ticket.
To retain the goodwill it still carries as India’s only party serious about tackling the menace of corruption, which is the root of most of this nation’s economic malaises, it needs to focus on governing Delhi more effectively, sans the frills. It could then become a serious contender and alternative to the Congress and BJP in the next general elections post 2014.
Be that as it may, let us now shift focus to the likely election outcomes and its impact on the bellwether BSE Sensex.
Scenario 1 : NDA wins around 225 seats and Modi becomes Prime Minister.
This is the dream scenario for most stock market participants and at least immediately post the elections results, the BSE Sensex could zoom into an hitherto unseen orbit. Once the euphoria and dust settles down, its mobility – upward or downward would depend greatly on Modi’s coalition and intra-party management skills, the support he receives on the floor of the house from the Opposition to pass important economic legislations (this will be a major hurdle ), how the US Government perceives Modi as PM and resultant FII and FDI flows and finally, the global economic head-winds.
Scenario 2 : NDA wins around 180 seats and LK Advani/ Shivraj Chauhan becomes Prime Minister.
Though not an optimal scenario for stock market participants, they would accept this and even if there is no euphoric Sensex surge immediately thereafter, it could circumvent some of the problems that a Modi-led coalition would have to inevitably face. It could thus prove to be a more stable Government with a less volatile Sensex which could actually be favoured by FIIs.
Scenario 3 : Assorted regional parties and the dark horse AAP end up with a total of 180 plus seats, and to keep the BJP-led NDA out of power, the Congress offers outside support and selects a regional strongwoman/man as the Prime Minister.
Rightly or otherwise, stock market participants are almost too scared to even think of such a scenario though it is not outside the realm of possibility. It’s a no-brainer then that the Sensex could take a nose-dive. But those writing off the Sensex thereafter, would remember that the best years for the stock market in India (2004-2008) ironically came during a UPA regime that survived on the outside support of the Left Front.
While Scenario 1 looks the likeliest at the moment, the other two cannot be entirely ruled out or simply wished away. Again, while nothing is impossible in politics, the chances of the Congress-led UPA getting enough seats to form the Government again in 2014 appear as remote as the South African cricket team winning a thrilling ODI World Cup cricket final off the last ball.
As for the BSE Sensex, my experience of close to two and a half decades in the capital market suggests that while short term trends are determined by anticipated events happening or otherwise, the Sensex has a life of its own beyond political dispensations and is remarkably resilient.
And to end where we started – what about the economy? Cast a glance at the table below that tabulates key economic parameters over the last decade and a half which saw both the NDA rule ( 1998-2004) and UPA rule (2004-2014) and draw your own conclusions about who managed the economy how well and the correlation between the state of the economy and the BSE Sensex.
My hunch is that the economic cycle, not just in India but also worldwide could start turning soon and it can only get better from there. This could take the sting out of some serious economic issues that successive Governments in the past have kept sweeping under the carpet and the next Government too will in all probability do, whosoever forms it.
Simply put, I invest with a long term perspective of a minimum of seven to ten years and invest with confidence that the stocks and funds I select are robust enough to do well, irrespective of who occupies the musical chair at the Centre. I suggest you do the same instead of placing punts based on who will be the next PM.
(Ashok Kumar is a Chartered Accountant with a degree in Law. He heads LKW (India), a knowledge based Advisory and Training company and can be contacted at ceolotus@hotmail.com )
Perhaps it is because we are still a developing economy and not a developed economy that the frontrunner in the upcoming Indian general elections, the NDA and its campaign face, Narendra Modi, has focused on the ‘economic failures’ of the incumbent Congress-led UPA Government. But these barbs that state the obvious do not seem to be buttressed with any serious solutions beyond a state success model.
Yet, so disillusioned are the public at large and particularly beleaguered stock market participants with the UPA Government’s sins of commission and omission that even this shortage of quality in content is being overlooked. Hopes are also flying high about a much awaited stock market rally materialising should the NDA win 200 plus seats and pave the way for Modi to become the Prime Minister.
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But like in the game of cricket, there could always be the proverbial slip between the cup and the lip. More on that, later.
The Congress-led UPA has probably seen the writing on the wall by now and its limited cause too is not being helped by a confused campaign that seems to be going nowhere. The Congress bit the bullet in Delhi and is providing outside support to a popular AAP Government. Although it had the desired effect of sending the BJP into a tizzy, this support to the AAP unlike those to Third Front regional satraps in the past could prove very costly for it.
The AAP’s economic agenda, which it is in the process of formulating for its election manifesto has already been ripped apart and ridiculed by the BJP, the Congress and the highfalutin electronic English media in India who have criticised the month old Delhi state AAP Government of being populist.
Well, if populism involves taking on well entrenched mafias, providing water to the underprivileged and enhancing the billing transparency on power bills in Delhi, then what would you term the actions of both the UPA and NDA in its respective terms of nudge-nudge-wink-wink over the years at unpaid loans of ‘respected’ industrialists and entrepreneurs?
This act of felony is politely camouflaged under the management jargon of Non Performing Assets (NPAs) in the books of our banks. Just for the record, the number stands at a staggering Rs 1.6 lakh crore. I presume this is what constitutes good economics and governance ?
However, the worst fears of the BJP that AAP could hurt it in the general elections like it did in Delhi appear unfounded as AAP simply does not have the bandwidth as yet to gain too much beyond Delhi and the NCR region. Its announcement that it would contest a large number of seats in the general election has attracted all and sundry to the party including discredited businessmen and entertainers in the hope of getting a party ticket.
To retain the goodwill it still carries as India’s only party serious about tackling the menace of corruption, which is the root of most of this nation’s economic malaises, it needs to focus on governing Delhi more effectively, sans the frills. It could then become a serious contender and alternative to the Congress and BJP in the next general elections post 2014.
Be that as it may, let us now shift focus to the likely election outcomes and its impact on the bellwether BSE Sensex.
Scenario 1 : NDA wins around 225 seats and Modi becomes Prime Minister.
This is the dream scenario for most stock market participants and at least immediately post the elections results, the BSE Sensex could zoom into an hitherto unseen orbit. Once the euphoria and dust settles down, its mobility – upward or downward would depend greatly on Modi’s coalition and intra-party management skills, the support he receives on the floor of the house from the Opposition to pass important economic legislations (this will be a major hurdle ), how the US Government perceives Modi as PM and resultant FII and FDI flows and finally, the global economic head-winds.
Scenario 2 : NDA wins around 180 seats and LK Advani/ Shivraj Chauhan becomes Prime Minister.
Though not an optimal scenario for stock market participants, they would accept this and even if there is no euphoric Sensex surge immediately thereafter, it could circumvent some of the problems that a Modi-led coalition would have to inevitably face. It could thus prove to be a more stable Government with a less volatile Sensex which could actually be favoured by FIIs.
Scenario 3 : Assorted regional parties and the dark horse AAP end up with a total of 180 plus seats, and to keep the BJP-led NDA out of power, the Congress offers outside support and selects a regional strongwoman/man as the Prime Minister.
Rightly or otherwise, stock market participants are almost too scared to even think of such a scenario though it is not outside the realm of possibility. It’s a no-brainer then that the Sensex could take a nose-dive. But those writing off the Sensex thereafter, would remember that the best years for the stock market in India (2004-2008) ironically came during a UPA regime that survived on the outside support of the Left Front.
While Scenario 1 looks the likeliest at the moment, the other two cannot be entirely ruled out or simply wished away. Again, while nothing is impossible in politics, the chances of the Congress-led UPA getting enough seats to form the Government again in 2014 appear as remote as the South African cricket team winning a thrilling ODI World Cup cricket final off the last ball.
As for the BSE Sensex, my experience of close to two and a half decades in the capital market suggests that while short term trends are determined by anticipated events happening or otherwise, the Sensex has a life of its own beyond political dispensations and is remarkably resilient.
And to end where we started – what about the economy? Cast a glance at the table below that tabulates key economic parameters over the last decade and a half which saw both the NDA rule ( 1998-2004) and UPA rule (2004-2014) and draw your own conclusions about who managed the economy how well and the correlation between the state of the economy and the BSE Sensex.
| Year | GDP growth (annual %) | Inflation – Consumer Price – Annual % | Fiscal Deficit |
| 1988 | 6.18 | 13.23 | 5.66 |
| 1999 | 8.85 | 4.67 | 6.29 |
| 2000 | 3.84 | 4.01 | 5.2 |
| 2001 | 4.82 | 3.68 | 5.48 |
| 2002 | 3.8 | 4.39 | 6 |
| 2003 | 7.86 | 3.81 | 5.73 |
| 2004 | 7.92 | 3.77 | 4.34 |
| 2005 | 9.28 | 4.25 | 3.88 |
| 2006 | 9.26 | 6.15 | 3.96 |
| 2007 | 9.8 | 6.37 | 3.32 |
| 2008 | 3.89 | 8.35 | 2.54 |
| 2009 | 8.48 | 10.88 | 5.99 |
| 2010 | 10.55 | 11.99 | 6.46 |
| 2011 | 6.33 | 8.86 | 4.79 |
| 2012 | 3.24 | 9.31 | 5.7 |
My hunch is that the economic cycle, not just in India but also worldwide could start turning soon and it can only get better from there. This could take the sting out of some serious economic issues that successive Governments in the past have kept sweeping under the carpet and the next Government too will in all probability do, whosoever forms it.
Simply put, I invest with a long term perspective of a minimum of seven to ten years and invest with confidence that the stocks and funds I select are robust enough to do well, irrespective of who occupies the musical chair at the Centre. I suggest you do the same instead of placing punts based on who will be the next PM.
(Ashok Kumar is a Chartered Accountant with a degree in Law. He heads LKW (India), a knowledge based Advisory and Training company and can be contacted at ceolotus@hotmail.com )