Opinion | The importance of debating economic consequences of electoral outcomes | Mint
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Business News/ Opinion / Online-views/  Opinion | The importance of debating economic consequences of electoral outcomes

Opinion | The importance of debating economic consequences of electoral outcomes

Investors labour to find ways to invest without understanding politics but that's a problem

Photo: MintPremium
Photo: Mint

Election time brings an overdose of excitement among investors. Everybody is busy poring over results in great detail to get a grasp of what is going on. Investors have strong opinions on every electoral outcome. One wonders if they are more passionate about politics than investing. But the excitement ends there. Try checking popular WhatsApp groups of investors and you see admins routinely forwarding house keeping rules, which boil down to one line: “No political discussions here". There lies the strange paradox. Investors want to be sure about politics and at the same time abhor public discussion on the subject. The result is that investors constantly run the risk of being trapped in their own echo chamber. Not learning to discuss politics objectively can hurt an investor more than the inability to read business fortunes correctly.

The debate on whether investors should worry about politics is in fact an old and never-ending one within the investor community. Why do investors feel this way? The majority constantly feel embarrassed to share political opinions in public. Effectively, investors don’t want to risk hearing the political views of peers, which could often be drastically divergent from theirs. On social media, investors fear being judged on political opinions. Somehow, politics is not seen as politically correct enough to be publicly discussed. A much perpetuated view among the investor community is that it is actually possible to invest without understanding politics. So political talk is relegated to the status of embarrassing gossip, something you don’t want to be caught saying aloud. So the reticence is very much there, even in private. Being correct on politics seems so daunting that investors readily prefer the easy alternative of political correctness. So, investors labour to find ways to invest without understanding politics. But, there lies the problem. 

If we shy from building strong political insights and understanding, then we effectively start operating in a vacuum. The political economy has a clear bearing on the real economy. A government’s political will is binding on every policy and the pace of reform. Industry fortunes clearly depend on how favourably politicians and policy makers view it. When the industry is perceived as needing strong government support, it tends to be a beneficiary of reforms. If a sector can deliver political dividends, it is bound to receive better political attention. Political compulsions can even turn out to be a blessing in disguise. Weaker governments find themselves under greater economic pressure as global investors exert strong pressure on the rupee, drive investment sentiment and control public sentiment. Weaker governments struggle to mitigate these pressures and often seek remedies by expediting reforms. Investors must learn to see the brighter side of such a situation. We have seen this several times since 1991. So, whether a government is strong or weak, practical compulsions remain. They still need to manage the pressures on macros effectively and prepare the economy for future growth. Often, weaker governments surprise the markets with more reforms.

As we return to a phase of intense politicking, investors must learn to debate the economic consequence of electing a strong or a weak government. Both situations bring forward different sets of compulsions. While political compulsions vary, economic compulsions remain more or less the same. This is where investors who show maturity in political judgement are at a natural advantage over those who don’t. Political jingoism is not an investor’s calling. More importantly, he should be prepared for every possible outcome and show adaptive ability. Thinking only of one scenario, most often a picture of doom, is definitely not going to help investors do well in markets. Pragmatism is the key in dealing with politics. The excessive optimism investors showed on top down economic growth post 2014 was prefaced on their political preferences. But, it failed soon. Economic realities did not allow it and the markets found that out quickly. On the contrary, economic realities of the present will probably favour a strong top down economic recovery post elections 2019. Investors must learn to view politics objectively and judge economic realities pragmatically. Politics is here to stay. If we learn to understand it better, our understanding of its economic consequences will help take our investing to the next level. 

Shyam Sekhar is chief ideator and founder, iThought

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Published: 17 Dec 2018, 08:16 AM IST
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