Varun Goel, the head of portfolio management services at Karvy, a Mumbai-based financial services company, talks about the implications of the election result for the markets.
How have markets been reacting to expectations that the BJP-led National Democratic Alliance coalition will come to power and what kind of immediate and near-term impact on India’s markets would this outcome have?
Indian equity markets continue to rally ahead of the election outcome. The recent opinion polls indicate support building up for [the NDA]. Markets are getting excited about prospects of a better government emerging from the next election. Also, Indian equity markets have tended to move up going into the general elections. The average return of Nifty (the benchmark index for the National Stock Exchange) in the six-month period going into the general elections has been 17.6 per cent in the post liberalization era. Since November 15, 2013 markets are already up 9 per cent. We have seen foreign institutional investor inflows worth US$5 billion since January this year. Last month saw more than $1bn in fresh investments. We expect markets to react positively if the election results are as per expectations. We expect the rupee to be largely stable. The Reserve Bank of India is expected to intervene aggressively if the rupee appreciated above 59 levels to a dollar.
Is a BJP win likely to be positive for India's economy and markets in the longer term?
The previous NDA government between 1998 and 2004 is credited with several reforms like a national highway development program, reform of electricity sector and disinvestment of government enterprises. An NDA government is expected to be pro-business and pro-growth. There have been several concerns about policy paralysis and populist schemes in the last few years which have derailed the fiscal consolidation process. An NDA government is expected to be fiscally disciplined. An NDA government with a clear majority would be received positively by foreign investors.
How might markets react if the NDA does not come to power?
Markets might see a small correction of 5 to 10 per cent if NDA does not come to power.
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