Mumbai: With results of the recently held state polls and by-polls giving conflicting signals about the voter preference ahead of 2019 general election, Morgan Stanley said the equity markets would find it difficult to make further headway if this uncertainty persists.
“If the past five general elections are a guide, the market’s usual approach in the run-up to elections is one of optimism. However, the big change from the past is that none of the elections since the mid-90s has started with a majority government at the helm of affairs in the run-up to elections. Hence, it is unlikely that the market is as optimistic as it has been in the past going into the 2019 general elections,” it said.
Since 1984, Morgan Stanley noted that there have been only two instances when the market was down on an absolute and relative basis six months and three months before election results (1998 and 2009).
“However, 2018-19 could be different from the past. This government has been India’s first majority government since 1984, and the market goes into next year’s elections with an unknown probability of a weaker government compared to the incumbent,” Morgan Stanley added.
However, the financial services major added that the strength of the government do not have an influence over the market performance beyond the immediate term.
Eventually, the global financial services major said, share prices respond to growth and inflation, which again is a function of policy choices and global cues rather than the government’s strength.
Morgan Stanley listed out eight economic indicators that could play a significant role in determining the election outcome. They include two wheeler sales, tractor sales, rural wage growth, consumer price inflation, minimum support price, farmer well being, direct benefit transfers and jobs growth.
“Our eight indicators could help investors to predict an early election or otherwise. If the indicators start to weaken, the prospects of an early election rise.
“If these indicators are in good shape in the coming months, that would enhance the prospects of re-election of the BJP-led NDA. If the indicators are in bad shape, that would likely improve the prospects of a majority government by an opposing party,” it said.
