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BSE in a tizzy, billions at stake

April 25, 2014

The 2014 general elections in India are a watershed of sorts. It is the economics that is the issue in these elections. In that these are perhaps the most positive elections of all times in the history of modern India. The Congress led UPA is trying hard to throw in other issues like religion and secularism into the picture but Narendra Modi led NDA is keeping it pegged on the issue of development.

It is the economic policies of Narendra Modi that have excited the markets. People have seen what Modi has done in Gujarat on the economic front and they want it replicated on national scale. When Modi went to the people on the development plank many thought he had his priorities wrong. Yours truly felt too that the message won’t get through and the common illiterate Indian would not respond to the development agenda of NDA and Modi. From the looks of it, it seems that the message has gone through. How far people have understood Modi’s message – his clarion call to development, jobs, growth and infrastructure refurbishment and unambiguous march towards prosperity we will get to know on the 16th of May, 2014 – suffice to say that the response of the people has been very encouraging.

And it is this response of the people that has enthused investors in the markets. Nifty is at an all time high crossing the 22000 mark. Bombay Stock Exchange (BSE) Sensex is also touching record high. People have invested billions of rupees in the stock markets in the hopes that a Modi win will see the Sensex go further up.

Mumbai has witnessed a 11% hike in voter turnout – from low 40’s to more than 50% which is a record in itself. While people are giving various reasons for this increased voter turnout my hunch is that so many people have invested in the stock market that they had no option but to go out and vote. It was more out of compulsion rather than any sense of responsibility that these lazy bones got out of the comforts of their homes and went out to vote.

One expert gave the thumb rule that one should multiply the number of seats won by NDA by 100 and that is where the Sensex will be post May 16th. So if the NDA wins somewhere around 220 seats on its own the markets will be around 22000 mark and if the NDA wins around 270 seats it will settle at around 27000 mark. I won’t quibble with this theory but suffice to say that an NDA win and government formation will see a surge in the markets. Lots of people are buying stocks in hopes that a Modi led government formation will see the stock market go berserk, which indeed it should. They are unmindful of the fact that most scripts have not given very encouraging results including such blue chip stocks like Maruti Suzuki, Cairns and ICICI bank etc.

The Ukrainian crisis and its fall outs

No stock market is a stand- alone entity. Markets react to global factors and there is a synergy in the way they react. Rarely would one find any one market surge or dip oblivious of the other markets. However it has happened before and it can happen again. I have a feeling that the Ukrainian crisis is getting out of hand and the smaller conflagrations could lead to a more intense conflict. Obama is trying hard to scale down the tension but Putin’s Russia seems to be in no mood to back off. Both the NATO and Russia are having military exercises on the Western and Eastern borders of Ukraine and that is adding to the tension.

The problem is that Russian oil and gas pipelines to Europe pass through Ukraine which makes it strategically very important. Sanctions from the West have begun to hurt Russia. Investors are fleeing Russia and Standard and Poor’s have downgraded Russia to a notch above junk status, making any loans that much dearer. Ukraine is a flash point and if there is a full scale war world markets could tumble.
The question is in case war breaks out in Ukraine and the world markets collapse would the Indian markets still be buoyant on the Modi factor alone? Will they touch record highs when world markets are in a free fall? Gas prices will increase and a spike in crude prices could see oil stocks rise while most other stocks will fall.

Investing in stock markets is a gamble. Sometimes one feels punting on horse racing a much safer bet. The run up to the May 16th election results is going to be very interesting. There are so, so many factors that could play. One investor said any small dip in the Indian markets is an opportunity to buy. I have a feeling that the real spike will not be on the day of the result but the day new government will be sworn in. Now don’t take my word for it. As I said there are so many factors at play. It’s best to keep ones’ eyes and ears open while investing. Make one’s own decisions.

And be ready for a scenario where an NDA led government is not happening and a Third Front led government or a UPA government takes charge. Where will the markets be headed then? India will lead the global markets in a sudden deep bearish run? I am off to the temple for a quick darshan!

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