Why Bihar election outcome won’t impact market
The massive loss that the Narendra Modi-led NDA suffered in the recently concluded Bihar elections need not dishearten investors.
First, the market has already discounted the possible outcome well before the actual results are out. That means, for the market, the possible downside from current level is very limited unless some major upheavels shake the confidence of global investors.
The recent rate cut effected by the Reserve Bank is already showing some signs of pick up in the economy activity (captured by automobile sales), though these are early days.
Even Bank of America-Merrill Lynch said in its recent report that It is lending rate cuts that hold the key to cyclical recovery. “It is for this reason we expect the RBI to cut 25 bp in February after CPI inflation meets its ‘under-6 per cent’ January 2016 target,” it added.
What had stuck the Indian economy in the last few years was lack of action or governance. If this Government keeps continuing its normal government activities like clearing files regularly, that will ensure pick-up in activity. With various Ministries relating to infrastructure – roads, railways, power, city development/housing – are doing their jobs, there is little doubt of strong revival in economy. The results of Ministries will start reflect in the economy from March 2016, if not earlier.
Narendra Modi has been leading from the front. Even at the height of high voltage campaigning in Bihar by attending the all important India-South African Summit with equal spirit.
Even after suffering huge loss, the government has shown its commitment on the reforms agenda by announcing key FDI related reforms and liberalisation in 15 major sectors of the economy from agriculture, animal husbandry to private banks.
Lastly, those who fear that the the Government will suffer on big bang reforms due to the aggressive and assertive opposition, particularly in Rajya Sabha where they have upper hand, there is no such big bang reforms, except GST BIll or Goods and Service Tax Bill. Even the thumping win in Bihar would not have changed the situation for the Government on that front.
Besides, for global investors India is one of a few good options available to park their funds for better returns. Those who have high conviction on Indian story need not panic on short term gyrations in the market.
One will do well if he stays the course and buy good companies.
(Author Gemini Talkies).