Modi, positive for stocks...

Shares’ Sensex reflects the investors’ perception of an event which has a positive or negative effect on their earnings… if the investors see that a particular decision, by political-parties, government and its agencies like RBI, and/or, demand and supply in the goods and services market, can affect their earnings negatively they will sell, or, otherwise, if they perceive that the same things will increase their earnings they will hold and invest more… The Sensex even responds to the changes in the government which has been a trend since last few elections… Every time when Manmohan Singh, under UPA, was nominated PM the Sensex reacted positively since he is an economist and a reformer, he introduced many reforms in his stint as finance-minister and, now, people try to figure-out who can be the best for the stock market… This time the stock market investors, both foreign and domestic, are trying to anticipate the next government and PM, and, Narendra Modi is seen as the prophet of change against the boring and burdensome second term of UPA. Everybody started complaining against inflation and even the stock market is treading slow due to high-interest rates by the RBI. According to the experts the stock market is very much inflated and there is an asset price-bubble, the inflation adjusted Sensex is around 16, 000. And, we can not reject the idea that the Sensex is very much inflated in the hope of a good government, and, probably, Modi.  Therefore, there is a big gap between a share’s real-prices and nominal prices (what we generally see), and, this gap is not supported by fundamentals of demand and supply and their effect on prices, and, is expected to go down with inflation, because nominal-prices equal real prices plus inflation and when inflation goes down real prices go up. The Sensex these days is moving around it historical heights, never reached before, which is a testimony that the market sees Narendra Modi as the one who can tread the economy through choppy waters. He can help the economy grow out of sticky inflation and high interest rates which will help in reviving investment, in the stock-market too, and achieve higher growth rate.

The defeat of the Congress in the recent state polls and BJP’s success with Modi appearance on the national level as the prime-ministerial candidate has an unprecedented effect on the stock markets. The Sensex has increased almost 20% since September 13, 2013, when Narendra Modi was first declared as PM candidate, even in the face of a slowing economy. The price of stocks which were not doing very fine early, like power, infrastructure and capital goods sector, bounced back. These sectors are perceived by investors to be the major beneficiaries if Modi becomes PM after 2014 general elections. Modi has done tremendous infrastructure development in Gujarat which is the reason why investors see Modi as good for power and infrastructure development stocks. Gujarat based Adani Enterprises was the biggest beneficiary of the recent rally in the stock prices which gained almost over 100% since September. Moreover, the capital goods companies like BHEL, Seimens and L&T, and, power financing companies (PFC) saw sharp increase in the price of stocks of capital and power industries which are likely to do well after the elections. Even though these companies have seen a rise of 30-40% in their stocks but their prices are still below their all time highs which are expected to go up as the investment cycle flourishes. The market has a lot of expectations from Modi, especially agriculture and industry, as far as inflation and high interest rates are concerned. Gujarat’s agriculture with a high growth rate of around 10% is a model for the rest of INDIA when food inflation, especially cereals, is in double digits and the overall agricultural growth rate for the country is 2-3%. However, BJP has opposed FDI in multi-brand retail. But, FDI in multi-brand retail would improve the condition of our farmers. Agriculture is just like another industry. It would help farmers to sell their product directly to companies; a whole chain of middle-men will go down. Higher income would further boost investment in agriculture, higher prices will act as an incentive, and farmers will produce more...

Modi’s effect on the Sensex can be gauged from the fact that it continued to increase since Modi was announced BJP’s PM candidate on September 13, 2013 and reached new heights in the expectation that he will become PM. On the day Narendra Modi was declared PM candidate the Sensex was around 18, 887 and just after a month, on 13 October, the Sensex gained 1000 points or 5.3% and was around 19, 902. In the next month, on 13 November 2013, the Sensex appreciated to 21, 196 by gaining 1300 points or 6.2 %. However, in the month of December the Sensex fell to 20, 898, but higher than the base in September 2013 and regained 21, 140 in Januray 2014. In February 2014 the Sensex fell again but regained in March and April and is moving around 22, 876.Therefore, if we find the total percentage points the Sensex gained since Modi was declared PM candidate, we find that it has appreciated round 4000 points or 21%.. However, experts are expecting the stock-market to correct at least 3, 000 points in case Modi does not become PM, but, see Sensex hit 24, 000 if Modi becomes PM. If Narendra Modi becomes PM with his pro-business, pro-growth and development image, the market may witness increase in the Sensex because his party has shown credibility as far as inflation is concerned and the BJP has also credible plans to reduce inflation. Therefore, Modi’s government will be good for real-prices of shares because inflation will go down, interest-rate will go down and investment in the stock market will pick-up…