Effect of Current State Elections' on Indian Economy - A summary

In this reading, we make an effort to analyse the direct effect of the current and the upcoming elections in India on the Indian Economy & Indian Stock Exchange in brief. The study also includes the effect of the above on the Indian Rupee in comparison with Dollar.

The running scenario of elections affect the chores at its peak. The three kings’ BJP (Bharatiya Janata Party), Congress and AAP (Aam Admi Party) playing their roles on twilight. Rajasthan, Chhattisgarh, Madhya Pradesh, Mizoram and Delhi are the chairs for which the game begins this time. Every party play its role, at its best, which shows their ultimate participation to win. The exit polls show its own cards which has its effect on the market. Let us discuss, what it is...

State Elections’ and Saying

Recently, as we all know, the election in four big states in the country take place and leaves a direct effect on the Indian economy. The Bharatiya Janata Party’s (BJP) showing in the state elections strengthens the hope in the markets that a Narendra Modi-led government will take office after the general election next year. The generation is fade up with the growth slowdown, the targeting of businessmen and foreign investors, the lack of direction in policymaking and the clout wielded by the left-wing of the Congress party. Modi, on the other hand, is viewed by market participants not just as business-friendly, but also as a leader who is able to get things done. Many domestic as well as foreign brokerages have said that a Modi victory will be positive for the markets and the exit poll predictions had buoyed the Indian equity market last week. Election fever is picking up in India, and market vouching for BJP under the leadership of Narendra Modi. "A change in government, preferably led by a large national party like BJP, would be welcomed by markets as it would be a fresh mandate and hopefully a fresh perspective on policy making," Macquarie Research said in a note. So, BJP would certainly be seen as a positive by markets, especially given Mr Modi's impressive performance of economic governance in Gujarat.

Exit poll predictions and its market effect

The exit poll predictions declared on December 6th shows a clear win for BJP in MP; has edge In Delhi, Chhattisgarh. Congress faces a blank-out in these four states according to the polls. It proves to be a booster shot in BJP’s arm and that of its prime ministerial candidate Narendra Modi. Exit poll predictions had buoyed the Indian equity market as well as many domestic as well as foreign brokerages have said that a Modi victory will be positive for the markets. Sensex surged on news showing that exit polls conducted in four states predicted a BJP victory. Furthermore, the rupee also strengthened against the dollar to a new week high. The Benchmark Sensex surged 249 points to a one-month high, although profit booking at higher levels dragged the indexed below the 21000 level.

Sensex opened on a positive note and climbed as much as 457 points to an intra-high of 21,165.6. Profit booking pared the gain and the index closed at 20957.81, adding 249.10 points. The index is at the highest closing level since 20974.79 on November 5. The CNX Nifty on the National Stock Exchange spurted 80.15 points, or 1.3 percent, to 6241.10. The SX40 on the MCX Stock Exchange rose 120.07 points to 12427.14. Hathiramani says: "If we are able to maintain Nifty at 6,250 before results, my hunch is that all market participants would have factored in the positives of the results and we would then definitely be headed to 6,400 levels."

Effect on Rupee against Dollar

According to the predictive polls declared on 6th Dec, the market shows a strong growth. In the same, the rupee strengthened to 61.53 against the dollar in intra-day trade.

“The Sensex surged on news showing that exit polls conducted in four states predicted a BJP victory. Furthermore, the rupee also strengthened against the dollar to a new week high,” said Raghu Kumar, Co-founder of RKSV.

Citi Research says that regional funds that were underweight India are trying to go neutral to prevent taking a call on the general election. That trend should now be reinforced, with more foreign institutional investor (FII) funds flowing in. It isn’t just the equity markets that will react favourably to the state election results. The rupee too gained sharply after the exit poll results came in, in the hope that FII inflows will rise. Recent FII trading activity shows robust net inflows into equities. A big source of uncertainty—the tapering of bond purchases by the US Federal Reserve—persists. Recent strong economic data out of the US has strengthened the belief that tapering will begin soon.

Effect on the INDIAN STOCK EXCHANGE

As we all know that a declared win, on Monday, of BJP, the Sensex and Nifty surged to new lifetime highs on all round buying, after swept out three out of 4 state polls and boosted hopes that a new government in 2014 general elections would be more business-friendly.

The BSE Sensex ended at closing high of 21,326.42 with a gain of 329.89 points while the NSE CNX Nifty closed at 6363.90 points, a hefty rise of 104.00 points. Across markets, 5 out of every ten stock rose. This helped investor wealth soar by about Rs 75000 crore.

Besides BJP’s strong performance in Assembly polls in four states, sustained capital inflows and a firming trend in the global markets also helped markets cement gains. The BSE 30 share barometer soared to an historic high of 21483.74 points, before pairing some gains to settle at an all-time closing high of 21326.42, beating its previous record of 21321.53 set on November 3. It had gained 287.82 points in the previous two sessions after exit polls showed BJP putting up a good show in four states.

Buying was mainly seen across-the-broad with 12 out of BSE 13 sectorial indices closing in the green. The BSE Consumer durable, however, ended with a fall of 0.11%. ICICI Bank and HDFC Bank shares together contributed 163 points to the gains on the Sensex, which was also lifted by L&T (Larson & Turbo) and Reliance Industries. BHEL and Maruti Suzuki were among 20 index shares that moved up. Nine of the 13 BSE sectorial indices advanced, with a strong performance in bank and capital good stocks.

What About 2014 Elections, Some Sayings

Alastair Newton, Senior Political Analyst, Nomura is of the view that any government coalition is going to probably depend on outside support. So, BJP would certainly be seen as a positive by markets, especially given Mr. Modi's impressive performance of economic governance in Gujarat.

"However, it could still be very difficult to push through structural reforms in India given the fractious nature of Parliament and the likelihood that there will be a significant number of parties who are looking after caste interest, regional interest and other vested interests," he added.

Expensive valuations?

"At a time when earnings are contracting, GDP growth is not back, consumption is slowing down. 20,000 on the Sensex looks slightly expensive," said Nimesh Shah, MD & CEO, ICICI Prudential AMC, in an interview with ET Now.

"If we break the market out of 50 stocks in Nifty itself, around 15 stocks would be which are doing very well, but the rest of the market is quiet and a lot of value is available on the table," he added.

Investment opportunities:

"In the interim, we recommend caution as macroeconomic indicators remain subdued, and non-recurring events like elections will limit room for incremental government action.

Under the circumstances, we expect following companies to relatively outperform as their fundamentals help them tide over the near term uncertainties.

Top buys includes stocks like Eicher Motors, TVS Motors, JP Associates, IRB Infrastructure, United Spirits, Jyothy Labs, Axis Bank, HDFC Bank, Infosys, Tech Mahindra, Persistent Systems, Metals- NMDC, RIL, Dr Reddy's, Cipla, Glenmark, IPCA, Sun Pharma, JPVL, PTC and Idea Cellular." - Nikhil Vora, Managing Director, IDFC Securities.

Bibliography

TIMES OF INDIA – 6TH & 10TH DECEMBER EDITION

LIVEMINT – ARTICLE BY MANAS CHAKRAVARTY

ECONOMICTIMES.COM - ARTICLE BY KSHITIJ ANAND

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Madhusudan Mishra 
on 26 December 2013
Published in Others
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