Well since Bihar is the topic of the season I also thought that I will write my two bit on what I see as the impact of the same on the Stock Markets, Economic Reforms, and Economic Recovery etc. My first and foremost view that I have held for some time is that Bihar is not relevant from an economic growth on Market standpoint as have not been many other events like other state elections, Greek Crisis, Fed Taper etc.
I am infact quite shocked today to go through my twitter timeline and see “Experts” projecting that markets are going to fall big time and remain low for a prolonged period just because of Bihar Election results. The fact of the matter is that the development agenda as well as growth prospects are likely to actually get accelerated after these elections. This was very clear to me yesterday as the government increased duties on petroleum products as well as Service Tax as a move towards fiscal consolidation on which I will write separately. The agenda during the time of the general elections 2014 was very clear. People were sick and tired of Socialist governments which promised and never delivered. Aspirations are much higher than the roti, kapda and makaan today and the socialist parties were still promising the same. It is unfortunate that the opposition led by Nitish Kumar took up the development agenda and BJP actually fell back on weird kind of agendas which the people were sick and tired of. The results are very clear to see.
My view is that Narendra Modi is a driven man and he is sincere in his agenda of development. We have seen several steps being taken to push this agenda and the Indian Economy is much stronger today than it was a year back. Underlying economic trends are pointing towards a growing momentum which will become stronger as we move towards the years 2016 and 2017. The simple message that worked i.e. development and job creation will come back into focus now and will infact be bullish about the markets.
The growth numbers of companies and earnings growth is likely to pick up this quarter onwards and become stronger as we enter the year 2016. Earnings growth overall for the Financial Year 2016-17 should be in the region of 20% plus as input costs remain benign, interest rates are lower and operating leverage comes into play as capacity utilizations improve. The impetus being given in sectors like roads, railways, power etc will start bearing fruit over the coming year and provide further impetus to economic growth. As inflation remains benign, consumer confidence will improve and drive the demand of consumer products. Somewhere towards the second half of 2016 we will also see strong impetus in corporate sector capital expenditure as their capacity utilizations move up.
If you are a trader maybe you should be worried for the short run. However given the extreme pessimism that is floating around I do not see much downside to the markets. Although markets bottomed this year around the levels I thought they should the recovery has been more volatile than I expected due to heightened expectations. Recovery was always expected to show first signs from the October – December quarter and that is something that we will surely see going forward. A year back there was huge optimism in the air and I had warned that markets are running ahead of fundamentals as recovery was likely to take time. Today becoming negative when the recovery is on is ridiculous. Like markets continued to rally from 8500 to 9000 despite no fundamental basis we could also see a similar 100-300 point downside today. However this will be an undershooting at a time when the longer term prospects are extremely strong.
MARKETS WILL BE MUCH MUCH HIGHER FROM THE CURRENT LEVELS TILL THE END OF 2016. ITS TIME TO PLAY FOR THAT.