Exit polls and markets: Beware! Play the expected euphoria with caution

It will be interesting to see how the new government will generate additional revenues to fund populist schemes already announced without dampening the market mood.

Markets remained highly volatile during last week with the Nifty conquering the 11,400 mark after threatening to go below 11,100 early in the week. It started the week on a pessimistic note, after IIP contracted to 0.1 per cent in March 2019, the lowest in 21 months. Continued selling by the FIIs ahead of the General Election outcome and the prevailing trade war tensions between US and China kept the market nervous. Sentiments got further hit after Indian Met department’s announcement of a late arrival of monsoon, dampened the early revival prospects of consumption focused sectors.

However, later in the week, sentiments improved after comments from U.S. President Donald Trump that he has decided to delay tariffs on auto imports by up to six months resulting in the trade war tensions easing a bit and finally Markets got a second booster from the supposedly leaked outcome of the Exit Polls predicted a Modi win.

The Exit Polls on Sunday evening revealed a smooth win for BJP-NDA with a median of about 300+ seats. The markets have given this probability a thumbs up with a gap up opening of 250 points on the Nifty and 850 points on the S&P BSE Sensex.

One needs to see whether this sustains as the final outcome rolls out on May 23. Except for 2004 where the margin of error of all the exit polls went horribly wrong, rest of the election years from 1998 were fairly consistent in terms of the direction. However, 

looking at the margin of victory as per the exit polls, it seems BJP-NDA will sail through even if one would assume a 10 per cent margin of error. Assuming that it’s a comfortable victory for BJP-NDA, we could see the up move converting into euphoria as the foreign institutional investors (FIIs) may again make a beeline to invest in an economy where there is political stability and visibility. It would have also caught the naysayers on the wrong foot with short sellers running for cover. All those sitting on the side-lines would be forced to jump in lest they miss the rally.

After the initial festivities, the marketmen and especially the FIIs, would look to see how Modi 2.0 will kick start the consumption cycle, improve trade deficit, provide employment opportunities and deal with farm distress. A “Damocles Sword” hanging on the NBFC sector needs to be handled deftly and swiftly lest it engulfs the economy into another rut like what Banks’ NPA did in the last two - three years. Real Estate is another elephant which is groaning under its own weight of unsold inventories and unserviceable debt. And globally President Trump’s attention may turn towards emerging markets, especially India, after China has been tamed.

Business Standard

BJP Council meeting Today | BJP National Meeting for Lok Sabha Elections 2019

BJP council meeting today: BJP chief Amit Shah will inaugurate the BJP national meeting and PM Modi will deliver the concluding speech on Saturday at Ramlila maidan.

The Modi government's "social justice" plank with its outreach to Dalits, backward classes and general category is likely to be a key theme at the BJP's two-day national council meeting starting Friday, as the party looks to set the tone for its Lok Sabha poll campaign.

BJP president Amit Shah will inaugurate the meeting -- the biggest ever for its national council with the party expecting participation of close to 12,000 members -- while Prime Minister Narendra Modi will deliver the concluding speech on Saturday, laying down the agenda for the general elections.

The meeting, themed 'Abki baar phir Modi Sarkar' is of importance in the view of the upcoming Lok Sabha polls.

Read Business Standard's Lok Sabha Elections 2019 coverage

Senior BJP leaders were tight-lipped on whether the Ram temple issue will find a mention in the meeting but some delegates said that the party may refer to it amid demands by Hindutva organisations, including its ideological parent RSS, for a law to construct a temple at the disputed site in Ayodhya.

The party has invited its all elected members, ranging from those in local elections to its MPs, besides organisational leaders from across the country, for the meeting.

Parliament's approval of a bill providing 10 per cent reservation in jobs and education for economically weaker sections in the general category has boosted the saffron party's morale after it suffered a blow in the recent assembly polls where it lost power in all three states it ruled.

Sources said the council may pass three resolutions, highlighting the government's "successes" on various fronts ranging from economy to social justice and also dwell at length on the prevailing political scenario.

The BJP believes that the bill, which will come into force after getting the President's nod -- a mere formality -- will consolidate its core vote of upper castes in the Hindi-speaking states and also strengthen its appeal among political significant communities like Jats, Patidars and Marathas, among others.

Shah has often asserted that the BJP will win more seats than the 2014 polls, when it had won its first ever majority bagging 282 of the 543 Lok Sabha seats.

A section of the party believes that anger among upper castes played a role in its loss in the recent state polls.

Party sources said the Modi government's measures, like granting constitutional status to the OBC Commission and strengthening the law on atrocities against Dalits and tribals, are likely to be highlighted and projected as part of its "social justice" project.

Business Standard