The general elections are just around the corner and all the political parties are busy wooing voters. The ruling Congress party in its attempt to woo voters released its 2014 manifesto recently.
There are some good, but overdue, ideas such as the big emphasis on health as well as the plan to push for the construction of toilets in every household. The manifesto promised a new right to health, policies to lift 800 m people into the middle class and GDP growth rate of more than 8% in the next three years. The Congress also promised an agenda to create 100 m more jobs for the youth. But the bulk of the manifesto weaves together the same sort of promises that the Congress and many other parties have been making for years.
Rahul Gandhi assured us that 90% of what was promised in 2009 has already been implemented. If that were really the case, inflation would have been under control. Inflation has remained high for quite some time now. And this has compelled the RBI to keep interest rates firm even as growth rates have slowed. Corruption has been rampant. Scams and scandals were tumbling out of the closet with alarming regularity. There were no meaningful attempts made to ramp up infrastructure, which would have done away with some of the supply side bottlenecks. Some policies announced did not appear to have been properly thought, thereby raising a big question mark on whether India is the right place to do business. And not to mention, the government's finances have gone completely astray.
The key point is that the Congress manifesto promises too many things at once - in an attempt to cover all bases but at the cost of credibility. It is true that political outcome is a key event for stock markets. But there are other factors like global liquidity and valuations which are even more influential and can determine the fate of the market irrespective of political turmoil.
We believe that investing in equities based on a change in government is highly speculative. A change of the ruling party would only lift sentiments and stock prices in the short term but would do nothing to solve India's long term problems. For that we need real, tough reforms. And looking at the Congress party's manifesto, there seems to be no new ideas which can bring about the required change.