The election results seem to have driven investors into a state of panic. At Value Research, we've been inundated by readers asking us what we think the futuire holds. As our opinion, we present Mr. Dhirendra Kumar's editorial that is appearing in the May 15th issue of our magazine.
There is said to be an ancient Chinese curse, 'May you live in interesting times'. Mind you, it's a curse, not a blessing or a mere proverb. The ancient Chinese knew well enough that only unpredictable and volatile.
things are interesting. At least as mutual fund investors, we would all like to live in boring and predictable times. Today, every investor is looking towards the newly-installed government in Delhi and wondering whether the times are going to turn interesting for them too.
When I analyse at some of the basic numbers of these general elections (analysing numbers is not a habit that is easily dropped, whether it is funds or elections), I can see how the lives of our politicians are already very interesting. Here are some facts about these elections: The number of people who voted for the BJP went down from 8.83 crore to 8.75 crore compared to last time. The Congress' vote went up from 10.52 crore to 10.64 crore and TDP's dropped from 1.36 crore to 1.22 crore.
In percentage terms, the BJP's share of the total vote declined by 2.03 per cent points, the Congress' fell by 1.88 points and the TDP's fell by 0.62 points. If you thought that the BSE Sensex was too sensitive to the market's movements, think of the poor politicians. Our electoral system's sensitivity to shifts in voting is extraordinarily high. When you see those huge headlines about landslides and politicians getting deleted, do remember that our system drastically magnifies change. What are projected as calamitous, history-changing events by the actors and commentators in this drama are voting shifts of a few lakhs of people.
What kind of impact can the new government have on the economic climate of the country and what should we do as investors to prepare for the future? As I write this page late at night on May 13th, I don't yet know who will be the prime minister, but it looks like being a Congress government supported by the left and a host of the usual 'third front' suspects. At least today, there seems to be a general air in the media and in financial circles that we have a stable situation and one where economic reforms will continue.
I too hope that this will happen but I don't quite buy into the stability argument. What we have here is a coalition of people who are natural adversaries, and one where the biggest party has barely half the seats in the coalition. Remember, for the last five years, the BJP was leading a coalition when it held 33 per cent of the seats (36 per cent if you count the Shiv Sena, an unshakeable ally). This time around, the predicted hung house which the markets were earlier getting panicky about was one where the largest alliance was expected to get around 48 per cent of seats and the largest single party 38 per cent. Instead, the electorate has delivered one where the largest alliance is 40 per cent and the largest party a mere 26 per cent of the seats. I hope we'll have stability, because hope is all we have.
However, when one moves away from politics, things look far more cheerful. The fundamentals of the Indian economy are stronger than they have been in years, and nothing has changed that. In the long-term, how well your investments will do will have more to do with how the fundamentals of the economy move than the details of the government's composition. Maybe, at least more than the past, we do have an economy that is a little politician-proof.