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By Ruma Dubey

It looks like we have now entered the ‘election year.’ Last time around, the elections were held from 7th April till 14th May and the results were declared on 16th May.  Based on the assumption that the time frame for 2019 would be around the same dates, we are more or less, a year away from a new political picture emerging. By new, we mean, it could be a thumping victory once again or lesser than last time’s 282 or a nightmare scenario where there is no straight majority.  

Whatever the outcome, what it means is that as the world’s largest democracy gets ready for the new year ahead, FY19 will essentially be all about a wait and watch; all moves by the Govt and now we know, even the RBI, will be more of an election campaign.

What this means is that from now till next year, the country – its people, its economy, its social progress; basically everything will be on move at break neck speed for initial six months and then all decisions will be on hold.

This is also true for our stock markets. We will have the monthly IIP, inflation and intermittent RBI policies to look forward to.  Yes, be sure, it will all be with an eye on 2019 – all hunky dory and optimistically positive. But keep an eye on oil and inflation; irrespective of what RBI says, cyclically and even seasonally, the writing on the wall says that the dynamics could be headed for a change.

We as retail investors have anyway turned into mute spectators, watching the index move like a yo-yo which has moves to the tunes of FIIs, domestic funds and HNIs. The bigwig stocks as such are quoted at PE multiples of 100 and over.  Thus there are some stocks which are grossly overvalued, running much ahead of their fundamentals but at the same time there do remain many small and midcap stocks which continue to look good.

The markets have been fairly stable for some time now.  In the last 12-months, from March 2017 till 31st April 2018, FIIs made a net purchase of equity to the tune of Rs.21,500 crore.  Their net purchase of debt or bonds is at Rs.1,14,500 crore.

The mood on the Street remains upbeat and the overall perception, at least till now is that a stable Govt is most likely to come to power. Punters are backing big time on infra and capital goods as they expect that these two sectors could see the maximum gains in the run-up and then post elections on  expectations of major economic reforms for the sectors.

In the 12 months from 1st March’17 to 31st April’18, FIIs have been net sellers for only 5 months in the equity market and 2 months for debt. We expect the moment to continue for a couple of months more but as we said earlier, starting Jan’19, things will start slowing down as FIIs would prefer to hold on to their purse strings till the outcome. If a hotchpotch Govt is formed, without any single party winning a clear mandate, they might prefer to wait longer to see how the khichdi Govt will shape up economic reforms.  And if BJP tops its previous victory, well, there will be really be no stopping the partying.

For now, over the next fortnight to a month, it will all be mostly driven by earnings. Fiscal deficit will emerge as the prime concern for FIIs but for this calendar year, all will make merry to all the sops which will be doled out in the pre-election mode.


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