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The New Uncertainty

The new government will have a willingness to drive fundamental economic reforms, as well as the majority to drive them through. This will mean a much bigger downstream impact on corporates

In the several months-long run up to the Lok Sabha elections, the investment markets had worked on the basis of a stability scenario and an instability scenario. The general idea was that the more seats that the NDA got, the more stable would the next government be. Since no one was seriously contemplating a situation where there would be a UPA-3, a lower NDA total meant an unstable third front supported by Congress.

However, I think the investment markets will soon realise that while we now have a more stable government than anyone had expected, the election results have actually reduced the predictability of what happens in the markets in the medium and long term, and I mean that in a positive way. If the NDA had got 200 or 220 seats (which was the consensus view as recently as March), then we would have had incremental changes. No big ticket legislative reforms would have happened, and Narendra Modi would have to learn to plead with powerful coalition partners for everything. At best, we would have had an improved and cleaned up version of UPA that communicated better--no mean achievement, but not a game changer.

Instead, we have is a government that has the means, and likely the will, to make big changes in the economic landscape. Bigger changes means bigger, and less predictable results. This will mean a much larger impact on who will be the corporate winners and losers five years down the line. We’ll hear a lot from investment advisors about this or that sector or group or company benefitting from the new political dispensation. Don’t believe in it. Everything is up in the air, and there’s no telling what will fall where. And that’s great news.