Caught in electoral choppy waters
Markets are caught in electoral turbulence with volatility spiking ahead of the results. Sensex and Nifty had run up in anticipation, and are now in choppy trades. Comparisons with previous poll years is fraught because markets tend to deliver outcomes with weak correlation to poll results.
A host of factors weigh on stock performance. Most are driven by economic undercurrents, and politics merely adds to volatility. Investors, particularly those making systematic investments in MFs, have some extra cushion to ride out the big market moves.
A medium-term investment horizon also provides similar comfort. Where Nifty will settle by end-2024 depends more on global market conditions than on how the numbers stack up in Lok Sabha.
India's economic outperformance is unlikely to be unduly affected by political outcomes. Fiscal policy is on a path to correction after unanticipated surges due to Covid and a subsequent energy shock.
CAD has also corrected satisfactorily with a downturn in the commodity cycle. Inflation is on course to reach its target, despite episodic spikes in food inflation. There are signs of revival in rural consumption and in private investment.
Production incentives and bilateral trade agreements are beginning to show up in manufacturing exports as services exports have slowed.
The global environment is also not too challenging. On current indications, the world economy seems to have avoided a deep recession despite areas of concern such as China's weak recovery and the risk of geopolitical tension spilling over into energy prices. India's over-dependence on domestic demand acts as a buffer against trade fragmentation, but it's vulnerable on account of its energy imports.
