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Wednesday, May 28, 2014

Modi effect on stock market – a guest post

After all the debate, discussion and anticipation, the Modi government has been sworn in and the council of ministers announced. The suspense of what will happen and who will get which ministry is over. Now it is time for getting down to business.

The first salvos have been fired by the PM – by first inviting heads of SAARC governments to the swearing-in ceremony and holding one-on-one discussions with them about bilateral issues and then, by setting up a SIT for unearthing black money in the economy. The first was an unexpected courtesy to our neighbours. The second is typical no-nonsense ‘walking the talk’.

What will Modi’s effect be on the stock market? In this month’s guest post, Nishit takes a look at the sectors that are likely to lead the next up moves in the stock indices if Modi continues to deliver on his poll promises.

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My previous month’s guest post began this way: “The market is going up as if there is no ceiling. Every day one sees their portfolios increase in value and everyone seems to be getting swept up by the Modi wave. Now, let us try and see what can derail this rally.”

Now, Modi has won the elections with a huge mandate. What next?

The first 6 months to 1 year are the honeymoon period for any Government. This is the period when they are given a degree of latitude. This is the time when the markets have hope in the new Government.

The new Government has promised jobs, growth and progress. How will they do this?

Firstly, they have to tackle the infrastructure mess by clearing road projects and making coal available to the power plants. Stocks of Infrastructure and power companies would start moving once these road blocks are cleared.

Next, finance has to be provided for these projects. Banking and infrastructure lenders will be the next to move up. As provider of materials for infrastructure to be built, steel and cement companies will be the next ones to rise.

In the midst of all this, IT and Pharma stocks, which are seen as defensives and export oriented, will lag behind. This is because the rupee has strengthened which may lead to their profits being curtailed.

PSU stocks should be another category which needs to be watched closely. Gujarat government stocks have done well under Modi.

Also, company stocks of a few industrialists perceived to be close to Modi, like the Adanis and the Ambanis, need to be closely watched.

These are interesting times we live in. For the first 6 months and especially during the time till the Union Budget in mid-July, the markets may rise on hope. After Diwali, emphasis will shift to the performance and results delivered by the new Government.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan.)

2 comments:

praveen said...

very timely and aptly analysis of present market sentiments,thanks for enlightening us

Nishit Vadhavkar said...

Thanks for your encouraging words, Praveen