The ‘play’ button has been pushed on for investors

Madhabi Puri Buch,

MD & CEO, ICICI Securities

The mood of the moment is clearly upbeat. The largest and most complex election process on the planet is complete. The impact of the results on the markets is clearly positive, both in the short term and long term, in the secondary markets and the primary markets.

It is almost as though investors had pressed the "pause" button on major decisions on account of "uncertainty". With a clear mandate and the strong expectation of stability for the next five years, the "play" button will be on. If global cues continue to be positive, the "play" could even become a "fast forward".

Specifically, liquidity in global markets is reasonably strong, local mutual funds have been in cash for some time and internationally the risk appetite has increased significantly. The volatility index, commonly seen to be the " fear index" doesn't look quite as "fearful" as it used to.

Add to that, India continues to enjoy a competitive advantage amongst emerging economies. The three aces -- the demographic advantage of a young, English-speaking, productive population the domestic consumption advantage of a growing middle class consuming a variety of products and services, including in rural India, and the advantage of a financial system that is stable and well regulated.

The FII flows would follow. In respect of the primary market, once the new government presents the full budget, there would be clarity on the fiscal deficit.

Interest rates would see stability, thereby opening up the debt capital market. Possible disinvestment of PSUs to meet part of the fiscal deficit could see an additional impact in terms of giving the equity capital markets it first major IPO or FPO.

In the long term, the new government has a unique opportunity to add to its strategic policy initiatives. The country today has a fiscal policy and a monetary policy.

There is today, a unique opportunity to create a “markets policy” that will direct what the country wants to see as the balance sheet of India Inc -- the mix of debt and equity, the mix of long-term and short-term funds and the mix of domestic and foreign funds.

The country looks forward to five years of health capital formation in the economy...five years of a healthy and robust capital market.

Booster dose for FII sentiments

Dinesh Thakkar, CMD, Angel Broking

Anything conclusive helps make better decisions, and this is exactly what has happened in the recently concluded Lok Sabha elections wherein the Congress-led United Progressive Alliance has ‘almost’ single-handedly managed to garner the requisite number of seats to form a government. While the exit polls had indicated only a marginal lead for the UPA, the actual results have beaten the estimates of even the most optimistic political analysts.

At the time of writing this, the UPA was leading the tally with 260 seats, just 12 short of the magic figure of 272 required to independently form the government.

There are various inferences that one can draw from the election results this time round. One, Indian voters have taken a clearer stand in this election.

Second, the government that will be formed at the Centre will be a more stable coalition than the ones India has had in the past, thus taking away the uncertainties pertaining to an early election or the discontinuation of policies and so on.

Third, since the Left has weakened considerably in this election and the UPA, in all likelihood, will form a government without it, the government is expected to function smoothly without any opposition.

This will also give the UPA greater leeway to speed up the reforms process pertaining to opening of the insurance, retail and airlines sectors, disinvestments to manage fiscal imbalance and so on.

The results will go down well, particularly with the foreign institutional investors, a section of which had been waiting on the sidelines because of the political uncertainty and the final political combination at the Centre.

Thus, considering this and the fact that the election results have been conclusive enough, Indian stock markets are expected to remain ecstatic in the short-term, as fresh money finds its way into the markets. We would advise investors to remain ‘long’ on the India growth story.

Ultimately, industrial growth to drive market

Satish Menon, Director, (operations),

Geojit BNP Paribas Financial Services

The visibility of Manmohan Singh and his work for five years has created a sense of satisfaction among the people. When the last election results were announced, the stock markets did not take it positively. Now, after five years of work, the markets would be more comfortable with the new government.

We understand that a coalition government is here to stay. The markets had expected the UPA or the NDA to form the government, though may not be with an absolute majority.

The market would not have taken the third front forming the government positively. Nobody wants a hung Parliament, which is the worse that can happen. Also, nobody would want re-elections within a year because of the money, time, effort and now the shoes spent.

The new government is expected to continue its spending on infrastructure and get GDP growth back to 8-10 per cent, In the long run, it is very clear that growth in corporate earnings would decide stock market growth. The election is a temporary event, and its effect would be short term.

We are one of the fastest growing economies of the world and any government that comes to power should play by it and play for it. We can now expect young blood to participate actively in running the government, which will lay the foundation of what the future of this country would be like.

As we are aware, growth in the corporate sector has not been so good, compared with last year. The slowdown rumours are still doing the rounds, banks are flush with funds and are not lending or are not able to lend. On the other side, in the last 45 days, we have FII money coming in, the Sensex going up by 20 per cent.

It is said that the market discounts the future events before the events occur, so the appreciation in the market in the past few weeks may be attributable to the fact that it expected more or less the same stable government.

Next on agenda: Faster growth, lower deficit

Manish Sonthalia, Fund manager, Motilal Oswal Securities

With all the turmoil around us, the elections could not have come at a worse time. A lot of precious time has been wasted in electing a new government -- which should have been used to tackle the crisis instead. Hence, the importance of a new government coming to power could not be emphasised further. There is plenty of work that needs to be done to bring the economy back on track as soon as possible, and to achieve this, the country needs a stable government.

The most important issues that need to be addressed are: a boost to the GDP growth through measures to boost consumption and investment, and tight fiscal discipline through reduction of budget deficit, either through FDI inflows or other means. Government borrowings have bloated to alarming levels and require immediate attention. The markets would be comfortable with the Congress-led coalition.

Any combination other than this would have been viewed negatively, as it would have been viewed as unstable. The markets would have been happier if the BJP-led coalition came to power because their manifesto is clearer in terms of their economic agenda than that of the Congress. Two, they have demonstrated in the past that they can take tough decisions.

The markets had factored in a zero per cent possibility of a third front government led by the Left coming to power. If that was to happen, the markets would have reacted by falling 20-25 per cent from the current levels.

However, of late, it is a common opinion that the Left would have diminished influence in the formation of the new government. To my mind, one really cannot say this with too much of certainty.

Had a third front government come to power without the Left being in the driver’s seat, the situation would be compared to how the economy and the markets had fared during the tenure of the Chandra

Shekhar, IK Gujral or Deve Gowda when the trend line rate of growth of Indian GDP was maintained, but there was nothing done to improve the growth rates.

Markets, to my mind, would have a perennial downward bias, and any sustained upmove would be quite unlikely. Any upmove would be viewed suspiciously and met by selling pressure, both from foreign institutions as well as local players. The general investment climate would be weak as business confidence levels would drop. It would not be doomsday scenario as such, but it would not be a very happy feeling either.

These are difficult times and initiatives from the new government are required to put the economy back on track. In the backdrop of these requirements, reforms would be required and there are huge expectations from the forthcoming Union Budget.

Bank, auto, cement scrips to be in focus

Nirmal Jain, Chairman, India Infoline

The election results have pleasantly surprised the market participants. The UPA will be in a much better bargaining position now. In the last five years, as the Congress was playing a survival game, they could not do much with reforms and policy decisions such as foreign direct investment in insurance, retail, banking reforms and so on.

Now, the expectations are high. The market will be euphoric and may open about 10 per cent higher. Therefore, one has to be cautious, but this may possibly be a beginning of another bull market. There will be opportunities for investors to invest. Once the euphoria is over, one needs to be cautious about negative cues from global markets, oversupply of papers and swelling government borrowing.

There are indications that formation of stable government will trigger flow of foreign capital in equity as well as debt. This would mean appreciation of the rupee and revival of liquidity-starved sectors such as real estate and infrastructure. Banks, auto and cement look like sectors that could outperform and where investors may choose to focus.

Bold policies likely to open floodgates for FDI, FII cash

Devesh Kumar,

Managing Director, Centrum Broking

The market wanted a stronger and more stable formation to take charge at Delhi. The UPA, with a stronger mandate, will create a positive sentiment in the market. The new government now has the task of restoring fiscal discipline and aiding economic growth. However, the job will be made easy by falling inflation and improved cash flow in the system.

The stock market is expected to react positively to the election results. In case the market reacts negatively, investors should take advantage of this opportunity through careful stock selection as medium- to long-term fundamentals of the economy are in favour of a bounceback in the market.

Markets may react differently to the announcement of the composition of the new government. However, we at Centrum believe that the long-term outcome for markets and economy will be directionally the same. Economic reforms will continue as there are no major differences on the direction of economic policy.

With respect to FDI and FII, we feel both areas will grow at a significant rate. India today is one of the few countries whose growth rate is going to be above 5 per cent. Due to this high growth prospects and attractive investment opportunities, FII and FDI flow will increase over the next two to three years.

Disinvestment going to be the buzz word

Karan Chimandas,

AVP (financial planning), PINC Wealth Management

The election result is a positive surprise. The Indian electorate seems to have matured largely by voting for a stable government and this has been construed as one of the best possible results that we could have had, given the diverse nature of coalition politics.

Markets would take this development as extremely positive, as expectations of more widespread reforms would be built in. Disinvestment to privatisation would be the buzz in the market in the near term. Public sector undertakings would primarily be in focus.

There would also be a great deal of improvement in investor sentiment. Also in line is an impending Budget, which is going to whip up excitement in the market.

On a cautious note, however, the market direction, which will be positive in the near term, could face resistance from weaker global markets. There have been positive changes globally in terms of the economy. However unemployment and sagging demand continue to be a dampener. Yet, the market will offer good investment and trading opportunities in the near term. One thing is almost certain – the lows of October 2008 or February 2009 may be a thing of the past and we may look at consolidating a medium bottom around the 3,000–3,200 mark.