Prime Minister designate Shri Narendra Modi will be sworn is the nation’s new Prime Minister on Monday the 26th May at 6pm. In the next 24 hours or earlier the cabinet members and their portfolios would also be known. While currently there is speculation on who would be included and what portfolio would be given, it is widely believed that the cabinet would not be a jumbo cabinet. The Prime Minister elect is the first PM to be born in independent India and the first to lead a single party to victory after 1984.
This column has been writing consistently over the last eight months, that the country would vote for a change in government and a government that would be stable. Such a substantial vote increase has put all pollsters and their mathematics to complete shame. Political strategies would have to be rewritten post this election and one would be not surprised if in a couple of years the curriculum at IIM’s and Business Schools across the country teach election 2014 as a case study.
Markets are now in a mood of rejoicing and are celebrating the success of the change and a stable government. A decisive mandate and a historic one makes the markets even more hopeful. The rally last week where half a dozen sectoral indices recorded double digit gains while the BSEMIDCAP and BSESMALLCAP gained a fantastic 11.62% and 15.75%, shows that interest is returning to the markets. The danger lies in missing the bus and then trying to catch up with looking at stocks which have not risen. Quality companies always are more expensive than the market and never come cheap. This fundamental fact is never more apparent than at times when the markets have begun to rise.
A key sector for the markets has been PSU and this has been used as the whipping boy of the previous government. In their zest to stick to the magical number of fiscal deficit they have sold shares of the PSU sector indiscriminately and destroyed value of these companies. They have extracted huge dividends and literally milked the companies dry.
The expectation this time around is completely different. As Chief Minister of Gujarat not a single share of any of the listed PSU’s in Gujarat was divested. The same is likely going forward at the centre and the temptation to pluck the low hanging fruit and get some money to improve the finances would be bypassed.This expectation saw the BSEPSU gain over 72% in the last 8 months when compared to the August 2013 close. In the same period the SENSEX and NIFTY have gained 33% and 34% respectively. I believe the announcement of the Cabinet and the policies in the next few days about market related issues like divestment will act as fodder for the upswing to continue.
Markets are being driven by the money being invested by FII’s and they have put in Rs 15,000 crs in the current month of May. In the first four months of the current Calendar year they have invested Rs 32,000 crs taking the total to Rs 47,000 crs. Historically whenever the FII flow crosses the magical figure of 1.2 lac crs in 12 months our markets have provided more than adequate returns to investors. With a stable rupee and policy paralysis set to end, everyone is hopeful.
May series futures expires on Thursday and this month has been a good one for bulls. The current level of the NIFTY which is at 7,367.10 points is up by 526.30 points or 7.69% higher than the April futures. Looking at the current scenario there would be no pressure on the bulls to roll over while the bears still holding on would like to roll over.
In good news for the Indian housewife and gold savers, RBI did away with the 80:20 rule where 20% of the gold bought by jewellers had to be exported. This had resulted in there being a premium on physical gold. The abolition of this step saw gold prices fall sharply to around Rs 27,250, their lowest levels since August 2013. Readers should remember that the current duty on gold import is 10% which is widely expected to be brought down in the coming days as such rates has made gold smuggling rampant.
Well let’s keep our fingers crossed and hope for the best. Feel good factor is an important thing when you need to keep momentum going. A broad thinking FM who is pragmatic and approachable would go a long way in keeping the markets going. Let us raise a toast to the man who took the jibe of being a chaiwallah all the way to Parliament and proved that in a democracy all are equal.