Election & Markets..what to expect and what to do!!

[ROHAN KACHALIA]

Elections & Markets​

It’s the time for the people of India to exercise their power to elect their representatives from various constituencies and bring a face with a zeal and charisma to lead the nation from the front (Second only to Mr. Barack Obama).

Now this time the elections are extremely important for the corporate sector, individuals and especially the markets given the global recession and more importantly when the election outcome is highly uncertain. Along with this, the key concern will be to bring the economy again in good shape with a robust growth.

So what to expect from the markets in this tricky time? Read on to know more.

Expect market to be choppy and volatile as the result date nears. A trend has been seen during the last few general elections which shows that almost a month before the elections sensex gained on an average of 8.8% and shed away all the gains by almost 30% following the elections. Where the Congress led alliance or BJP led alliance both of them will be happily accepted by the market but the third front coming into power will definitely be a shocker and a nightmare for the markets.

The reason why the markets will react positively to either the Congress or BJP led alliance is both the parties are having almost similar policies towards the development and growth of the nation. Even the manifesto of Congress lists economic revival and restoring high growth as its immediate priority. It also mentions that public expenditure on agriculture and infrastructure will be stepped up. The manifesto of BJP reads income tax exemptions for individuals with an annual income of Rs 3 lakh and Rs 3.5 lakh for women. This could mean higher disposable incomes for individuals, and thus, increased consumption of consumer durables, automobiles, travel, FMCG and entertainment among others. Its manifesto also indicates lower interest for farmers and certain housing categories besides, abolition of fringe benefit tax. This in turn, indicates gains for companies catering to rural India, as well some gains for India Inc.

There is a high possibility that the third front may come into picture and this includes parties like BSP, AIADMK, TDP, NCP including the left. Chances are that any of the ministry say Finance may go into their hands and lot of uncertainty can be expected. Even in the past governments led by V P Singh and H D Deve Gowda supported by third front did not last long. Even the third front manifesto claims that it would restore long term capital gain tax and abolish STT (on equities) and remove tax concessions given to some sectors like IT, which may not go down well with the market.

So to be in the market in this time will be very tricky and it is advised to trade cautiously and try to hedge your position how much ever it is possible if you are not sure of the movements in the market. The reason why I am saying to be hedged is there are no signs of a single party coming into power and will definitely have some alliances framing up. If a BJP or Congress-led alliance comes into power, we may see a rally of about 500-800 points in the Nifty. But if we see the Third Front in the driver’s seat, markets may retest the previous lows made in October last year. However, all these projections are valid only for the short term. In the medium-to-long term, global movements will prevail. Lastly avoid trading on May 16th as markets will be extremely volatile.