By Ruma Dubey

The exit polls have indicated the prospect of Modi getting crowned the Prime Minister of the country post the Lok Sabha elections. It is too early to really predict this but at least, as of today, that is the writing on the wall.

The stock markets are very happy as they feel Modi (not BJP) will be good for the economy, he will push for infra build and this in anticipation, infra, capital goods and power stocks are up in the green. Then there are some specific stocks, which zoom up or down every time, there is positive or negative news on Modi. These are companies whose promoters are stated to be “close” to Modi – Adani group, Torrent and even Mukesh Ambani’s Reliance. Other stocks which are expected to get some ‘collateral advnatage’ are L&T, LIC Housing Finance, Jaiprakash Associates, IDFC, Tata Power and other energy and ancillary companies. There is the general belief that such “modi”fied stocks will gain when he comes to power.

Now this is a big gamble but then most of what happens in the stock market is a calculated gamble, isn’t it? But would it also be so wrong to assume that such “politically connected” stocks will benefit?

What do we mean by political connections? Just as a common man might feel that he can get his work done expeditiously if he has ‘contacts’ in the Municipality or any Govt office, company owners, obviously with higher  stakes,  need such ‘contacts’ at the higher levels. It is a known truth, a necessity if you want to run a business in India.

The reason why there is an attraction for such ‘political stocks ‘ is because of the perception that such companies, which have prominent politicians at the helm or strong connections with those in power, get approvals and sanctions much faster. Like Sukhbir Singh Badal, the current deputy Chief Minister of Punjab, though he does not have any listed company, but apart from family owning a vast horticultural business in Punjab and a passenger bus transport business; his family has a 85% holding in the Trident Hilton in Gurgaon. And obviously, it is just a coincidence that Punjab National Bank, the Punjab and Sind Bank and the Oriental Bank of Commerce were bankers to the hotel project.

Or take the case of Gujarat Gas. It is rumoured in corporate world that it was thanks to the support of Modi that the state owned consortium led by Gujarat State Petroleum Corporation (GSPC) managed to oust British Gas by buying out its 65.12% controlling stake. It is said that Adani and Torrent has also bid, along with GSPC. BG was asking for a price of Rs.4500 crore but at Modi’s behest, Adani and Torrent stopped from putting in their bid, leaving only one bidder and thus GSPC got the stake at a much lower price of Rs.2464 crore.

But there is a flip side to it also. Like there were days when people bought shares like Energy Development Company simply because it is recognized as a “Amar Singh” company. Even today he is the Non-Executive Director of the company but it no longer has the fancy because of him. Infact whenever there is some negative news about Amar Singh, the stock continues to collapse though the fundamentals remain intact. Ditto for  Heritage Foods. This is a company promoted by Chandrababu Naidu. Though he is no longer on the Chairman, his son Lokesh Nara runs the company. Dayanidhi Maran running Sun TV and Spicejet are also a very strong ‘political stocks’.  Then there is Rajiv Shukla who own BAG Films and Naveen Jindal who owns Jindal Power & Steel. There is also Saleem Shervani whose listed company, Shervani Industrial Syndicate hit the upper circuit for past two days. The very well known Praful Patel was a well known businessman first and only now, post his ex-aviation portfolio that he became more famous as a politician. His listed company – Ceejay Finance.

Remember when Jagan Reddy was in jail? His “brand of companies” were beaten down to pulp -  Ramky Infra, Aurobindo Pharma, India Cement and Nava Bharat Ventures. These companies are under CBI scanner for issues relating to transactions of corporates with which Mr Reddy and his firms, and the investments they had made to secure land to set up special economic zones, etc. Today, Mr.Reddy is out and his stocks – Ramky has been consistently hitting the upper circuit every day, Aurobindo has been hitting new highs consistently, Nava Bharat has been showing high volumes and India Cements remains in the green.

Yes, if one has to survive in the corporate world, it is probably essential to kowtow with politicians. But how much and how far is the big question. Every industrialist has to knock on the doors of the politician but whether that knocking leads to money exchange and underhand dealings is what worries the most. Right from Ratan Tata to Mukesh Ambani, all need to kowtow.

So when we say avoid ‘political stocks’ it would tantamount to avoid investing at all! Thus ‘political stocks’ are like the ‘Jagan’ stocks which raise huge questions on corporate governance and companies owned by politicians. Well, if you cast your vote for that politician maybe you can buy his stock also – putting conviction and money, both at stake. To get close to a politician or not, is a tough decision -when in ruling power, its great times but when the chair is lost, its downhill. 

Remember, power resides where you believe power resides. Power of the idea, power of the fundamentals or power of the person running the company? That’s the choice you need to make.

PS: Keep a watch on the following stocks over the next few months:

The entire Adani group, Gujarat Narmada, Guj State Petronet, Guj Alkali, Welspun India, Guj Apollo, Arvind Mills, Nirma, Gujarat Gas, Aarvee Denim, Torrent Power, Torrent Cables, Cadilla Helthcare, Dishman Pharma, United Phosphorous, Alembic Pharma, Atul Auto – all are Gujarat based companies.