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The media spends tens of crore on media equipment and star-status anchors, each with an army of research staff under them, to make a correct prediction on the outcome of the polls.
Graph 2: In May 2009, the incumbent Congress-led coalition did better than expected and stocks surged by +17.2% in 36 seconds of trading on May 18
What happens next?
Now that the first exit polls have been released and have had ratings higher than either the return of Sachin Tendulkar to save the Mumbai Indians or the election of Modi to save the husband of the owner of the Mumbai Indians, the most important question - even more important than what will be the price of gas from the KG fields - is the overbearing Indian lament "but, what to do?"
Well, here are 3 scenarios and 3 potential outcomes:
So these above two scenarios are pretty clear and assume that the media, as has been proved in the past, know very little about what is really happening in India and the knowledge and information claimed by the media is derived largely from their town hall, people, and studio meetings they orchestrate to give an impression they really represent the views and news of India. Chai wallahs and taxi drivers - who earn 5% of what the media shakers earn, though free of tax - probably have a better pulse of India. George Fernandes and Narendra Modi are examples of that street pulse.
The third scenario - which is more troubling and complicated - is: what if the polls are correct?
What if the media really know their stuff?
And what if the CEOs and CIOs of the Elite Mutual Funds - and the Chairman of SEBI - are right in propagating the absurd idea that a mutual fund must have a minimum net worth of Rs 50 crore to qualify to fleece investors of their money?
The potential Scenario 3 was triggered by something I read on the web version of The Hindu Business Line which had compiled this summary table of the various polls released on the evening of Monday, May 12th:
The markets surged on Tuesday, focusing on the rout of the Congress and the victory of Modi. (Yes, Mr. Chidambaram, please accept that the stock markets really don't like you anymore and their rise since September has nothing to do with the quick fixes that you put in place, but are based on the hope - however wrong it may be - that Modi will turbocharge India.)
But, under this Scenario 3, India could be in some trouble pretty quick. Any celebration party should have well-marked signs for the exit door.
The problem with this Scenario 3 lies in the rise of the numbers in the extreme right column, innocently marked as "Others". Rather than an election result which focuses on national parties and their allies, voters are giving more strength and power to regional parties. Note that while the world is focusing on the left side of the table at the column marked "NDA (BJP+)" and while Modi may form a government and justify his premature "time for unity" speech, this column called "Others" can result in a repeat of what happened to Vajpayee's 13-day government. "Others" is estimated to see an increase in number of seats won by 20% to 40%. The country is not unifying under the 2 main parties, it is further fragmenting.
The Other Lady jilts the Macho Man.
So Scenario 3 is this:
Spice this with the geo-politics of the China adventure in the South China Sea, the Russian march on Crimea and potentially other ex-Soviet regions, and the US now in lame duck mode as President Obama begins to write his memoirs.
Stir this recipe with economically weaker China, still weak Europe, confused Japan, and pools of money slowly deflating the Great Expansion of Central Bank balance sheets as the US and UK reduce the rate of printing new money. Clarification: they will still print, but at a reduced rate.
This lower rate of printing new money is traditionally not good for asset prices (stocks, bonds and real estate) in Emerging Markets, including India.
From the 23,000 levels where we are now the market has a chance to head to 25,000 or 27,000 if a few things go right.
Though it may have more of a chance to head to 18,000 to 20,000 - because so many things can go wrong?
A negative Indian (and/or global) environment will also weaken the Indian Rupee. The Foreign Institutional Investors have bought over USD 10 billion worth of stocks and bonds in the past few months.
That could unwind very quickly on any "disappointments" further adding pressure to stock markets. SEBI has failed to understand the problems of retail investors and the continued withdrawal of retail money from the stock markets leaves the BSE-30 Index vulnerable to foreign mood swings.
Trim, don't sell out completely!
No, this is not the time to be "overweight" in equities.
But do not sell out completely!
Over long periods of time - which includes the reign of incompetent governments run by the Congress and the BJP - the returns from investing in stock markets is one of the few ways to secure your financial future, to give you the wealth to buy a home, or plan for your retirement.
You must always have an exposure to stock markets because - like the media - we in the investment business are clueless on when markets can suddenly turn and neither do we know how high they can surge. So do not count on us to tell you when precisely to buy or sell.
How many of these guru fund managers who blame you, the much criticized "ordinary" retail investor, for not buying any shares; how many of them were out there buying shares in October 2008 or in August 2013? Or coming on TV and yelling "Buy Now!"?
While you do need to invest in stocks, be careful.
Within your exposure to stock markets, avoid companies with debt and managements that thrive off corrupt or questionable connections with governments and bureaucrats.
And avoid mutual funds that invest in these companies. Or limit your exposure to these "plays on the India story": control your greed.
The elections may be over.
The exit polls may be over.
And on May 16th the election results will be known.
As pointed out, there are still so many unknowns out there.
The stock markets are, in my opinion, ignoring these potential bumps and shaky bridges.
So trim some of your holdings, revamp your portfolio, stay away from companies with debt.
Don't go digging for oil and gas or fishing for spectrum.
And pray hard for the good health of the Reserve Bank of India: they may, yet again, have to guide India through a tough few quarters if some of these local or global scenarios turn ugly.
Like a patient caretaker, the RBI needs to clean up after the bad stuff left behind by the animals that populate the Indian political scene.
And, then you will have Scenario 4: an Index beyond 30,000. Don't get excited now - that is some time away. For now, be focused on the various forces shaping the next few months. Be careful.
Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)