Of fusion and fission
22 JULY 2008	ARCHIVES | EQUITYMASTER HOMEPAGE  |  | RSS

The vote of confidence has been brought on by the withdrawal of the Left parties because the UPA government is moving ahead with a nuclear treaty with USA. The BJP wanted a nuclear deal - but not this one - is acting like a true opposition party: voting against anything that the ruling government wants.

The vote of confidence will have one of two outcomes:

 
1. The Government of Prime Minister Manmohan Singh will win, or
2. The Government of Prime Minister Manmohan Singh will lose.

But, in many ways, I believe that this vote of confidence has little meaning. It may add to the statistics of the history of the Indian Parliament in terms of how many such "votes of confidence" have been tabled before; how many were defeated; how many were successful in the sense that they threw out the incumbent government.

And, of course, the Indian stock markets could jump around plus 10% or minus 10% - depending on what people make of the final voting outcome.

But, in my opinion, the vote has little meaning.

And is of little relevance to what investors should do in the long term. Though, much money could be made in the near term from all the rumours and news flow that is bound to be generated over the next few months.

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The mating game
Though, technically, an election is not due till May 2009, my gut is that if the UPA wins the vote of confidence motion, the UPA will call an election. This victory will have come with the support of its new found friends, and the desire to cement this in an electoral pact will be strong. The mating season is upon us. So there could be an election by November.

And if the UPA loses, well, this government will have to quit and an election in November is probably on the cards.

So, if the stock market is looking for any direction from the vote on July 22^nd, well, it is likely to get a pointer saying "wait till November".
Uncertainty - of the Indian political khichdi kind - is generally not good for stock markets.

Corporate India will see their resources used for an election. It may be in the form of cash, human resources, or tractors, trucks, TVs and cell phones to move people and information. Those are the more innocent activities that some companies will indulge in. Others may posture support in exchange for policy changes - sometimes against rivals. Those are the more unpredictable kinds. In a game of chess, one rarely knows where that final move of "check-mate" will come from. But, when elephants fight, there will be a lot of tremors.

The irrelevance to India
In the 1970's the Congress had the chant "India is Indira and Indira is India". Well, Mrs. Indira Gandhi is no longer around and India has done pretty well. The Janata Party had their chant, "Andhere may ek prakash, Jai Prakash, Jai Prakash" in their hymn to Jayprakash Narayan - the light of the anti-Congress movement.

While individuals can - and do - dominate human action for years, their influence tends to fade. The good, to quote Shakespeare, is often mixed with their bones. Memories fade. Names are brought up in some imagery but the facts behind the name are startling. Mrs. Indira Gandhi nationalised banks and made the government companies stronger. This present Congress has made private companies stronger - in many instances at the cost of the government companies. The BJP and Janata Party did not want foreign investment in this country. Now, they want it - and set the pace for much of the recent economic growth.

Domination of political thought is also matched by domination of business houses and or stocks in the Index or in the stock market. The Bajaj, Birla, Dalmia, Jain, Mafatlal, Modi, Singhania, and Tata families dominated much of Indian business for decades. Most business houses have died a natural death - though substantial wealth may remain in the hands of a few members. And some groups have done well and have a good future. And new business barons have been born: the Ambani family being the most obvious example.

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Like business houses, stocks have had their years of domination, too. A decade ago, Hindustan Lever was the stock that dominated the Indian indices. It does not exist in the Top 5 of the BSE-30 Index today. Century, Hindustan Motors, and Grasim were the dominant Birla stocks. Today most have faded into oblivion - and no longer are "the market".

Investors need an anchor to make investment judgements. Long term investments need not be influenced by a no-confidence vote, slogan-bearing election campaigns, or dominance of existing blue chips. Investing is actually a pretty simple exercise. Speculation is what makes it complex. And, sadly, these very divergent groups - investors and speculators - participate in the same market.

So, as an investor, be ready for some really choppy times. As an investor, watch for trends - and never lose your rational behaviour. Or India may continue shining in the years 2009 and beyond, and you may be whining with a "I wish I had bought…".

Note: Ajit Dayal, the author is a Director in Quantum Information Services Private Limited and Quantum Asset Management Company Private Limited. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited or Quantum Information Services Private Limited. Mutual Fund Investments are subject to market risks. Please read the offer documents of the respective schemes before making any investments.