Bihar exit poll results may not soothe markets
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It’s no secret that the stock market would like to see the Bharatiya Janata Party-led National Democratic Alliance (NDA) win the Bihar elections.
The market believes an NDA victory will strengthen the hands of the central government, enabling it to carry out the much-needed reforms. On the other hand, if the NDA loses, the opposition in Parliament will get a shot in the arm and it will be encouraged to step up its attacks on the government.
How has the market behaved in the run-up to the Bihar election results that are due on Sunday.
The accompanying chart compares returns in Asian markets between 30 September and 5 November. India has fared the worst, barring Thailand, with the benchmark Sensex up a mere 0.6%, against 8.4% for Indonesia’s Jakarta Stock Exchange Composite Index, 8.3% for Singapore’s Straits Times Index, and 8.2% for Taiwan Stock Exchange Weighted Index. Several other markets have also performed better than India. The Chinese stock market has not been taken into account, since as it is blatantly rigged.
Other things remaining the same, the Indian market has underperformed perhaps because of worries over the outcome of the Bihar elections. If it was sure the NDA would win, the market would have done much better.
With most exit polls predicting a slight edge for the grand alliance, or a hung assembly, the markets might well get more jittery when they open for trading on Friday.
Foreign institutional investors are already nervous, selling Indian shares in four out of the last five trading sessions. On Thursday, they sold shares worth Rs.900 crore and a further sell-off can’t be ruled out.
Of course, exit polls have a tendency to go wrong quite often in India. If indeed, the NDA bucks these predictions and wins on Sunday, then the markets should shoot up, at least temporarily.
That said, markets are affected by many factors and disappointments with corporate earnings is another reason for the poor performance. It’s also possible that high valuations in India could be a cause. But the Purchasing Managers’ Indices (PMIs) for October show that growth in India is more robust than in other countries of the region, with several of their PMIs indicating contraction in economic activity.
Global factors, such as concerns over a forthcoming US interest rate rise, will affect all markets. Also, some of the export-oriented economies of East Asia should be hit harder on account of weak global conditions.