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Investing in India - Honest Truth by Ajit Dayal
Will stock markets prefer a Sita or a Ram? A  A  A
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8 APRIL 2014

Generally, the only places I get invited to speak are those sponsored by Equitymaster or Quantum Mutual Funds, entities I helped create.

So, when I was invited to be a part of a panel on the outlook for the markets hosted by Indian Association of Investment Professionals, to be televised live by Bloomberg and anchored by Vivek Law, I readily agreed.

A day later, I realized that the date of the talk was April 1 - April Fools' Day. I sent an email to the organisers, basically asking if this was a real invitation or an April Fools' Joke? No, they assured me, this was for real. Since no one really knows where the markets are headed, the CFA Institute holds these annual meets on April Fools' Day.

Gladdened that I was not the victim of an elaborate April Fools' Day, I showed up at the BSE Conference Hall on April 1 to attend - and be a part of - a very enjoyable evening.

The 6th Annual Forecast Survey (2014-2015) was released by the Indian Association of Investment Professionals, a member society of CFA Institute.

Here are a few highlights of who answered the various questions:

  • 431 people responded,
  • 68% of those responded were based in Bombay, 29% were outside of Bombay, but based in India; 3% were outside India.
  • 97% of the people who responded were members of either the Association of Investment Professionals or the CFA Institute.
  • 70% of the people who responded were from the field of financial services: brokers "sell-side", bankers, mutual fund "buy-side", private equity, and insurance.
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And these are some of the things they had to "say" about the elections and the impact of the election on the Index:
  • 88% said there would be a NDA (BJP-coalition) government, UPA got 2% of the votes, Third Front got 2% of the votes, and 8% expected a hung parliament;
  • 61% said that the market is expecting a stable government that will boost growth through major policy actions and reform, 32% said that the market is expecting a stable government but policy action may take some time;
  • Based on this expectation, 43% felt that the S&P BSE 30 Index will be above 24,000 while 41% expected the Index to hover between 22,000 and 24,000; only 0.9% expected the Index to be below 18,000.
  • Nearly 84% acknowledged that the Indian election results, politics, and government policy actions and economic reforms would be the most important driver for equities.
Stepping to the big picture outlook for the economy, the 431 people who responded said the biggest concern for economic growth was:
  • National election results, 32%
  • Domestic politics and corruption, 22%
  • Lack of business and consumer confidence, 20%
  • Domestic inflation and RBI policy, 15%
  • Global liquidity constraint, 6%
  • FX currency risk and credit rating downgrade, 3%
  • Global oil prices, 2%.
So only 11% of the professionals believe that external factors (the Fed and their monetary policy, fx risks, and oil prices) are concerns for the economy. A powerfully high 89% felt the problems were "domestic". Interestingly, only 15% believe that the RBI policy is a problem. Hmm, maybe Mr. Chidambaram and whoever comes in as the next Finance Minister will absorb that fact.

And what will determine the Index level - what will be the most important driver for equities?
  • 47% said it will be the results of the elections,
  • 37% said it will be the government policy actions and reforms, (sort of linked to point 1 above),
  • Global liquidity got 4.5% of the votes,
  • Global equity markets got 4.0%,
  • Corporate results got 3.8%,
  • RBI's monetary policy got 2.1%
  • Indian monsoon, 1.4% and
  • Commodities and oil prices lagged with 0.2%
So, based upon all the votes and questions - and assuming that the people who responded reflect the mindset of the people working in the field of finance it seems that this is what the market is expecting:
  • BJP and Modi are sure to win, NDA will form a government,
  • The government will come out with some policy actions,
  • These policy actions will result in a higher level of consumer and business confidence,
  • What the RBI does is sort of immaterial,
  • What happens to corporate earnings is sort of immaterial - or we can worry about that later,
  • Global events will have a minimal influence on the Indian stock markets.
Well, the manifesto of the BJP - the current favourite in this election race - has been released. I plan to read it to see if any of the expectations that the market has are listed in it.

And I will also read the manifesto of the Congress - not that they seem to have any chance of winning. But, notably, the Congress has already launched a "copycat" allegation of the BJP manifesto. Which may be true - any party can promise, but the true test is what can they deliver?

So far we have Rahul Gandhi rooting for Sita - as he bumbled on about "women empowerment" in his TV interview.

And now we have the BJP rooting for Ram by stating that the mandir will be built as they "explore all possibilities within the constitutional framework".

Well, while you select your vote of Prime Minister between Sita and Ram, note that stock markets move on moods for only a limited time - in the final analysis they need earnings. Or hopes for future earnings - based on sound and sustainable economic policy.

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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4 Responses to "Will stock markets prefer a Sita or a Ram?"
Dhamnekar Vinod
Apr 10, 2014
Hi,
Lord SHRIRAM(LORD Vishnu)(Lord Bramha's son)(Lord Bramha:Jupiter:king 0f heaven) is SITA's half body and goddess Sita is Lord Shriram's half body.
Hence without each other, both are incomplete.
Like 
nitin goel
Apr 10, 2014


Here Nitin GOEL

Dear Ajit ,

I have gone through your Note “ Will Stock markets prefer a Sita or a Ram”

I find it does not convey anything except giving statistic.

I was expecting something innovation and fresh idea from you.

Thanks and regards,
Nitin GOEL

Like 
Rahul
Apr 9, 2014
BJP releases a very good Manifesto. Focused on Administrative, Judicial, Police, Defence and Electoral reforms are the best part of BJP's manifesto. UPA did NOTHING on this. "Preservation and Promotion of Urdu" is an interesting line in BJP manifesto. Urdu is a special language, needs to be supported. Public investment will be raised to 6% of GDP. Good. But this is not easy. Section on Education is very weak (MMJ). Also no talk of bringing in private sector investment in Railways, another disappointment. No talk of selling government and Railway land. This is a must. I guess this is a touchy issue, may not want to raise it now. 100 new cities is an ambitious plan. Won't be achieved even in 10 yrs. But sometimes ambitious plans are good, even 20% achievement good. If Modi becomes PM, his first address to the nation will become one of the most important speeches ever. Nehru will be history. Like 
girish shah
Apr 8, 2014
when idiots attend such seminars who think oil prices should be at the bottom ( 2% )and election results on the top (32%) obiviously the speakers may be of the same level (no offence)
u should ask them suoppose the petrol price becomes Rs 50/LT. OR EVEN LESS (2008 price)and lalu becomes the PM then what do u think of the economy . no more comments best of luck
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