Why a NDA loss might actually be good for the Stock Markets, Investors and India

Markets seem to have a mind of their own and have historically demonstrated that they discount the future far ahead in their present values. Perhaps that explains why Foreign Institutional Investors have pumped in close to 10 Billion USD in 2019 alone whereas they withdrew almost the same in 2018 from Indian markets and barely invested a net total of 2.6 Billion USD in 3 years (2015 2016 and 2017).

Markets are almost certain that Mr. Modi will come back with a resounding victory and obviously for anyone vaguely connected to the markets, one cannot fathom a NDA loss.

But hang on! History is a great teacher and I make my argument that an NDA loss might actually be good for sharp investors and for the economy. When the obvious doesn’t happen, markets perform better. Lemme explain..

Stock Markets

The stage had been set in 2004 for a Vajpayee comeback. India was shining and just to prove this point, it is believed that close to 500 Cr (approx. 109 Mill USD at that time) was spent by NDA in 2004 and on that historic day of 13 May 2004 as the results started pouring in, the obvious didn’t happen – markets crashed from a high of 10^th May 2004 to a low just 7 days later by a whopping 28.4%. That’s some fall in 7 days for a size of Indian economy. That was the lack of confidence in UPA or Congress+allies at that time. Yet from the low on 11^th May 2004 to the same years high, the markets rose by 69% in just approx. one year. And from the same low (1292 Nifty on 17 May 2004) went on to rise all the way by 392% by 2008 (to 6357 sometime in early 2008).

I still horrifically remember a CPI leader A.B Bardhan (the moment he realised that CPI would end up being an important ally of UPA) on national television saying “to hell with divestment of PSUs and to hell with the economy, and within minutes the markets were locked in lower circuit. God rest his soul in peace. He did succeed in causing a serious consternation with his irresponsible statement on that historic day.

India still shone irrespective of the government. And whilst the obvious didn’t happen in 2004, the investors ended up making tons of money and the wiser ones who weren’t in love with their stocks and could muster the courage to buy when India allegedly stopped shining in May 2004 and sell sometime in early 2008 smiled all the way to their banks.

In 2008 the UPA govt took some stand on the nuclear deal, survived a near death experience when the now defunct CPI withdrew its support and the general public at large was not expecting the Manmohan Sigh Govt to scrape thru in the 2009 polls. In so many years nothing happened on the nuclear front, no new reactor came to be made and nothing changed for the nuclear energy landscape of this country……………….

But Boy.. +- 4,5 days from 16^th May 2009 (election results date) the markets went up by 18% around the result time and eventually up by 50.6% in that year alone from the lowest point. And 90.3% in the next 5 years till sometime in 2014.

When the obvious doesn’t happen investors make money and governments have little or no role to play in how the markets and the economy performs.

Acchhe Din started on the 16 May 2014 when Mr. Modi stormed against all odds to become the 14^th PM of India. And that year, because he was the obvious choice and in line with expectations of the nation, the markets rose a mere 7% in +- 4-5 days of the election results and a mere 66% in subsequent 5 years of his Prime Ministership.

I have always believed and the same has been historically and statistically proved that the best prime minister can add 50 basis points to the GDP of a democratic nation and the worst can at best (with great effort) shave off no more that 50 basis points off the GDP.

Now just imagine if NDA was to lose this election against the common belief of the nation, what all opportunities would that scenario throw for the prudent and the hungry investor.

Real Estate

Between 2004 and 2008 , people could buy an apartment or a piece of land in the morning and sell it at a neat profit in the evening. That was the kind of frothiness that existed in the real estate market. Brokers in Gurgaon roaming around in antique scooters in 2004 were driving Hummers and Porches by 2008.

The global recession in 2008-2009 didn’t help but the real estate kept going up. The economy progressed at a better than expected rate despite a financial crisis that, some say, was the worst in 100 years.

Real estate that was always considered a safe heaven and an asset class giving guaranteed return bled to death between 2014 and 2019. Some of my friends who bought prime real estate in Gurgaon and Delhi and Bangalore aren’t able to sell their assets at 70 cents to a dollar after holding their apartments and real estate for 5 years.

The point is – NDA has been a disaster for the real estate market that has historically been a safe heaven and some estimates say that the unsold inventory of apartments at a national level is at approx. 7 years. The top 7 cities have an unsold inventory of approx. 700,000 apartments.

A recent article in the Mint pegs UPA II to be significantly ahead of NDA II in almost all parameters in spite of the worst recession of 2008 and oil at lifetime high during that period.

Obviously much is left to be desired from the performance of this Govt wrt to real estate.

Corruption

Genetic mutations (Darwins theory of evolution) occur over hundreds of years. Character of homo sapiens cant be changed overnight. India over the last 100 years (reasons unknown) became a seriously corrupt nation. NDA tried hard to remove corruption overnight - Stricter policy of Aadhaar, Demonetisation, Watertight rules laid down by MOCA and GST.

Any nation across the planet would have hailed these steps as revolutionary and positively earth/nation shattering. But we poor Indians just couldn’t cope up with this setback. Majority of the people were not ready to weed out corruption or stop dealing in cash or deal in real estate without cash.

Result - : The growth of this nation, Vibrancy in the real estate market (a measure of national growth) and the common man suffered. And suffered hard. Because no one knew how to use the digital means and banking effectively. And this inherently smart and corrupt nation wasn’t ready for this dramatic shift and that’s why the entire demonetised currency found its way back into the system (as people figured out ways around this), much to the surprise of the Powers that Be.

Corruption is the engine of growth for a nation like India and ‘cash economy’ the fuel in it. NDA tried to remove both in a dramatic manner and displeased the nation. The preceding governments allowed a certain free run to everyone across the board (individuals and corporations) and the nation progressed. Cut this fuel supply and everyone suffers.

It is anyone’s guess about the benefits of extolling the virtues of corruption in a diverse, large and a disorganised country like India.

Jobs

This has become a contentious issue in the last few months. Some leaked reports (authenticity unconfirmed) pegs India’s joblessness at 45 year high. Have a heart,… this is bound to happen. The Govt has endeavoured to change the character of the nation overnight and removed the grease (corruption and cash) that drives the engine. How can anyone expect the nation to thrive? And perhaps that’s the reason why most of the citizens of India are roaming around like headless chickens and putting the NSSO in a spot because they released a report that was a true reflection of the state of the nation.

Alongwith the issue of jobs, everyone is talking of the rural distress. We guys living in urban cities can neither see the distress nor feel it. But speak to an Uber driver, or a ricksawwallah, or a vegetable vendor – the guys are in trouble. No one is feeling prosperous or happy. People love Mr. Modi, they say he is a man with a mission and a clear intent but the distress hasn’t reduced. Approx 12000 farmers commit suicide each year because of financial difficulties. For us urbanites, it’s just a statistic. But what a shame that a nation with its bedrock of progress and prosperity that was based on agrarian economy is in shambles. The farmers that feed the nation are happy to destroy the crop and give up farming because selling it to the middle man is more expensive. Forget 12000 suicides – even a single suicide by any farmer should be a national issue requiring attention from the topmost echelons of politics and strategy (read niti aayog or whatever).

I just read that the food inflation is at a 27 year low. Isnt that counter intuitive – if the population and fuel prices are increasing and area under cultivation is decreasing, such low inflation only means 2 things – either our supply chain management has become hyper efficient or the farmer isn’t getting his due. 

The final Take :

If the obvious happens, which is the NDA win, the markets and the economy isn’t going anywhere – for Indian stock markets are trading at 28-30 times their earnings that make the markets one of the most expensive in the world. If at all - these will come crashing down unexpectedly and against everyone’s wishes when the euphoria is over.

But if a majority of Indians doubt the promise of ache din, and begin to question the 15 lacs that were to come to our accounts, and the regime actually changes, the storm in the tea cup might actually bode well for all of us.

Ye Indians! – figure our where your bets are.

Manu also writes in the Huffington post

Earlier articles that created a flutter…..

In Defence Of Vijay Mallaya – The King of Good Times

‘Skin in the Game Reforms’ – Game changer in the Asset Management World

The Invaluable role of Chief Business Obstructers in the modern corporate world

Follow Manu on Twitter