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The stock markets have raised a victory toast to the recent BJP sweep of the state elections. The
S&P BSE-30 Index scaled a new high of 21,483 on December 9, 2013. However, the markets are wrongly celebrating the victory of a few false gods.
Share prices are influenced largely by:
While the BJP spokespersons on TV channels are trying hard to convince the viewers that the "sweep" by the BJP is due to the Namo factor, the winners within the BJP in the winning states of Madhya Pradesh and Rajasthan are not buying that story.
This BJP victory in states they were expected to win is not proof of any Namo fever. If Namo had vacationed in California and New Jersey, the new capitals of Hindutva - assuming he was given a US visa - the result would have been pretty much the same. The failure of the BJP to get a majority in Delhi is proof that the BJP has a lot of ground work to do.
The right to celebrate a "sweeping" victory belongs to the Aam Aadmi Party who, with their brooms, have shaken the outlook for those involved in murky deals. What the AAP does next will be the biggest determinant for the next national election. Not that the AAP can win at a national level - but they can upset the equation for the BJP. Disgruntled supporters of Congress may vote for AAP candidates in urban and semi-urban areas: enough to trouble the BJP in their bid to get over 200 seats.
The markets are right, though, in celebrating the slap on the faces of the arrogant Congress. Not that the arrogance of the Congress has diminished because of the election loss. To prove how disconnected the Congress is from the people and how connected they remain to delusion and "yes-men", we had to bear the embarrassment of a Digvijay Singh telling us that he is happy that the AAP took his advice and joined politics. And Finance Minister Chidambaram grumbled once more about how states have not curtailed inflation and have ruined his game plan of a solidly growing India. What the Congress needs to own up to is that most of the efforts of the Congress to boost India's global competitiveness have been by-products of corruption-riddled deals. Though there have been some flash-in-the-pan brilliant attempts by the Congress to even the distribution of opportunity by implementing acts such as the Right to Information, Right to Employment, Right to Education, and Right to Food.
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The juvenile blessing of AAP by Rahul Gandhi shows, once again, his failure as a politician even before his career has started. Rather than endorsing people after their victory, it would be better if Rahul Gandhi did what Pope Francis did in his first public appearance: seek the blessings of the people rather than bless them as has been the past tradition of the leader of the Roman Catholic Church. But don't expect the Congress to change: they will get back to the drawing board, huddle a bit, and in their muddled response will probably replace one Gandhi with another. Don't be surprised if Priyanka is propped up to be their new maata. She has the characteristics of her grandmother, the infamous Indira Gandhi: her look of determination, a strong walk, a convenient surname, and a husband who is an embarrassment.
The economy is still limp
So if the markets were celebrating any expectation of "political certainty" for the next general election, it will soon shed those 500 points of celebration. With no bonus points from a Modi wave, the market will have to get back to the difficult task of calibrating stock market levels with current levels of growth in the economy and with expected levels of growth in the economy. And if anyone is visualising a rate of growth in India's economy over the next 6 months that is higher than 6% per annum, they are probably:
Sure a good monsoon may add a percentage point to growth as much as a bad monsoon will deduct a percentage point from growth. But stock market rallies cannot be built on whether the gods decide to bless us with rain or not. Investors are aware that economies and stock markets can be cursed by the effects of bad policies and numbed by the impact of uncertainty and drift. The impact of a weak currency (which boosted exports) and the slight uptick in the global economy cannot negate the problems with the larger, largely domestic economy. To get India moving, the internal policies need to be right - exports can only help on the margin.
Go with the Flow
The rally - since the recent lows of August 28 when the Index flirted with the 17,500 levels - is a function of some Namo Premium but mostly caused by global inflows. The Namo Premium is still a work of imagination and hope and has yet to prove itself. The flow of money - the liquidity - has been real.
With over USD 10 billion swarming into India since August - note that local investors continue to sell - stocks had nowhere to go but up. The company results for the 6-months ended September 30 were marginally better than the expectations. But there are two things about these "good results" which make me a sceptic:
The other yarn is about the better results. I am sceptical.
The truth is that the global flows will be less a function of "India events" and more a function of what the new Chairperson of the Federal Reserve Board of Governors, Ms. Janet Yellen, will do in future meetings. The bet for now is that she will keep the printing presses flowing. This is good for the Indian stock market and will act as a strong antidote to the slow poison of misrule by the Congress and its disconnected leaders. But the day the Fed takes that injection of money away - or slows the printing press - that is the day when the stock markets will need to take a reality bite on:
Which leads to the obvious question: should investors book profits and exit stock markets?
What do you think?
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