Thought for the day
“A line has to be drawn somewhere between what is essential and what is peripheral.”
-Sargent Shriver (American, 1915 -)
Word for the day
Totem (n)
A natural object or an animate being, as an animal or bird, assumed as the emblem of a clan, family, or group.
(Source: Dictionary.com)
Teaser for the day
So many bureaucrats, police and army officers joining electoral politics!
Is it good or bad?
Many of these (or perhaps all) are disgruntled and might have their own agenda.
For example, imagine MoS (defence) V. K. Singh vs. Army Chief or MoS (Home) R. K. Singh vs. CBI Chief!
What if Modi juggernaut stops short of 7RCR?
As things stand today, the following scenarios could materialize
on 17-18th May when counting for votes is completed:
(a)
An NDA (pre-poll alliance) majority government
led by Narendra Modi. If BJP gets 210 seats on its own.
(b)
A new front majority government led by a BJP
leader other than Modi. If BJP falls well short of 200 mark.
(c)
A new front minority government supported by BJP
from outside. If BJP falls short of 200 and decides not to compromise on Modi’s
PMship candidature.
(d)
A new front minority government supported by
Congress from outside. If Congress gets more than 120 seats and BJP is well
short of 200.
(e)
A new front majority government led by Congress.
If Congress gets more than 145 and BJP is well short of 200.
In my view, all these
scenarios are possible. The probability of (a) or (b) appears more than 50% and
that of (e) is less than 10%.
The relevant
question for us however is what happens to economy and therefore markets if the
scenario (a) does not materializes. It is important because market opinion
presently appears totally biased towards the probability of Narendra Modi
leading a stable government post elections.
In my view,
irrespective of the outcome of elections some of the structural issues
affecting the Indian economy may not find any immediate solution. Food
inflation, stress in the financial system especially capital adequacy of PSBs,
unemployment, socio-economic inequalities, regional growth imbalances, poor
physical infrastructure, etc. are some example, where no improvement may be
seen in next few years.
However, with a
stable government (with or without Modi) many cyclical issues would get
addressed. The business and consumer confidence may improve leading the up move
in investment and consumption demand, capital flows may remain steady, trade
and fiscal balance may remain within tolerance limits and liquidity conditions
may improve. The economic growth may therefore stabilize in below potential
5.5-6.5% band.
The market has
already adjusted itself to the new normal lower growth and elevated rate
scenario.
The focus of global
markets has now definitely shifted to US rate cycle. A rotation from US bonds
to equities or other risk assets would be in order. Perhaps it has already
begun. A stable government in India (with or without Modi) will attract some of
this rotating money. A 1999-2000 type bubble creating rally between 2H2014 and
1H2016 is more probable. In my view, the market participants should be solely
focusing on is “what will lead this rally?
What we need is a
stable government that would last five years. If Narendra Modi gets to head it
I will be happy. If he does not – I’ll not be selling a penny worth of my
equities.
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