FROM NOW TILL 16TH MAY, MARKETS WILL LIVE ON DAY-TO-DAY BASIS
By Ruma Dubey
The suspense is finally over as the poll dates are announced today. The world’s largest democracy goes to the polls on 7th April’14 and the country will vote in nine phases till 12th May’14. The D-day is 16th May and thanks to computerization, results will out the same day.
What this means is that from now till 16th May, the country – its people, its economy, its social progress; basically everything will be on hold till 16th May. That might not be a difficult circumstance to deal with as we all are so used to this situation by now!
This is also true for our stock markets. We will have the monthly IIP, inflation and intermittent RBI policies to look forward to. But these figures might really choke you with any joy or sorrow as the numbers we get are essentially pertaining to ‘old books’ and with change around the corner, the dynamics could be headed for a change.
We as retail investors have anyway turned into mute spectators, watching the lackluster index move like a yo-yo which has lost its momentum. The bigwig stocks like – United Breweries, Delta Corp, Gillette India, Just Dial, Siemens , ABB, as mentioned in a research report today, are quoted at PE multiples of 100 and over and this while the Sensex is trading at a multiple of around 17 times. Thus there are some stocks which are grossly overvalued, running much ahead of their fundamentals but at the same time there do remain many small and midcap stocks which continue to look good.
The markets have been fairly stable for some time now, rising 18% from the lows of August 2013. FIIs have till date invested around $9 billion in Indian equities and the hope is that a stable Govt is most likely to come to power. Punters are backing big time on infra and capital goods as they expect that these two sectors could see the maximum gains post elections on expectation of major economic reforms for the sectors.
But FIIs have been holding back on their money into India since the beginning of this year. QE tapering apart, they are most likely and rightly so, waiting for the election outcomes. Data from SEBI shows that FIIs bought $450 million worth of stocks, much lower than $8.4 billion seen in Jan-Feb 2013 and $7.16 billion in 2012. And they are expected to hold on to their purse strings, till the outcome of the elections. If a hotchpotch Govt is formed, without any single party winning a clear mandate, they might prefer to wait longer to see how the khichdi Govt will shape up economic reforms. Yet, the underlying truth, irrespective of elections, the fact remains that FIIs might be currently bullish on India but they remain positive and that is the optimism on which we could see a decent pre-poll rally.
For now, the immediate cues would be the pre-polls outcomes on various news channels and print media. Domestic events will more or less be clued in to elections only. We could now see a ostentatious display of power – money and otherwise on display. Those in rural India could see many freebies coming their way, when politicians will try their level best to woo voters in their favor. The Election Commissioner has said today that he is worried about use of money power and has decided to put in place an elaborate plan to clamp down on this mence. He has stated that the commission has identified states where the use of money power is more rampant, and additional steps have been taken to monitor the expenditure by the candidates like deputation of additional expenditure observers and put in adequate number of central paramilitary forces. Well, we always have rules and regulations – if only the leaders set a trend by following it.
The market could also move on issuance of new banking licenses, expected any time soon. That, the RBI has said is independent of the Govt – whether in power or going to the polls. Thank God we have an independent and non-political organization like the RBI still intact!
So starting now till 16th May, let’s sit back and watch the ugly political dramas, hectic campaigning, heated debates, tall and false promises being made. You can buy quality stocks now, when the chips are down and uncertain as good, strong companies cannot be made and broken by elections.