Time To Re-Priortize

Out of the three factors that worked as the main triggers for the market recently, two have played out while the third is awaited. The first is of course the results of elections in Bihar, the impact of which on the market was already witnessed on Monday when it opened more than 2 per cent below its closing on Friday. The election result has not gone the way we thought it would. We were of the opinion that the BJP and its allies would win the polls with a clear majority and that this would change the course of the market direction, which has fallen by almost 5 per cent in the last one year.

The poor show of BJP in Bihar shows that the strategy adopted by Narendra Modi and Amit Shah has failed and what works for parliamentary elections cannot work for assembly elections. They cannot continuously rely only on Modi to win every election and should create strong local leaders, who are well versed with the ground reality and can connect with the local people. This is the second major defeat for BJP after losing the polls in Delhi.

I also believe this is a blessing in disguise, as this will make the ruling party at the centre to be less aggressive and more accommodative. There were instances earlier when the government acted with arrogance, which might subside now with these losses. It is quite possible that the government will henceforth reach out to the opposition with a different approach, and this may help the government in building a consensus for some of the important bills that have been stalled in the Rajya Sabha due to lack of numbers on the part of the ruling party. According to me, the opposition party too will not give any suggestions on important bills that are not in favour of the common people, and hence there is no harm in accepting their views.

From the market’s perspective, the election result had only a temporary impact. We already saw the Sensex recovering 400 points from its low on Monday’s trading session. What is important now is the pace of reforms. The government should expedite its reforms’ process, which will determine the long-term performance of the stock market. There are many bills, such as the budget, which can be passed even if the Rajya Sabha rejects them and the government should focus on such bills and take the economy out of its sluggishness. Meanwhile, floor management in the parliament should remain the priority of the ruling party.

The second trigger for the market was in the form of the September quarterly results, which are not up to the mark yet, barring a few mid-cap and small-cap companies.  Nevertheless, there is nothing surprising about this as we are expecting the results to start improving from the December quarter, which will gather pace in the next couple of quarters. There are many prominent personalities that are also now of the opinion that the economy is on the right track and growth will improve.

The third trigger is the chance of the US Fed increasing the interest rate in its coming meet. This is likely to spook the Indian market as and when the decision is taken as foreign investors might pull out from the emerging markets, anticipating further hikes by the US Fed in the days to come. What will also be important is the quantum of the hike; if it remains lower than expected, it will have only a temporary impact and the outflows may be lower in quantum.

However, these things are not in our control and hence we should focus on what we can do best to improve our economy. The government should walk the talk on its development agenda. One of the barometers of a vibrant economy is the number of companies tapping the IPO market or lining up to raise funds through this route. This year, until now, we have seen 18 issues and there are several more in the pipeline. Our cover story this time is on IPOs and how you should go beyond the conventional analysis of financials and valuations before you decide to apply.

In addition, we have couple of special reports. One is about the how the promoters’ stake influences stock returns while another is on the new gold monetization scheme by the government. Both are interesting and informative and will help you take better investment decisions. Please do send your feedback to comment@dsij.in.