The market is eagerly awaiting the results of UP elections, the impact of which will be marginal and will last for a short period only, believes Sunil Singhania, CIO-Equity, Investment at Reliance Mutual Fund.
Market has been stable as the result day nears on March 11.
Singhania said that things are also getting better for the ruling party now. The government has done a remarkable job with reforms especially with the crucial Goods & Services Tax (GST) Bill. Authorities are continuously pushing for the July 1 implementation date.
Also, foreign direct investment has been hiked in crucial sectors like insurance and defence, which is another positive for this government.
In the next 3-12 months, reform impact on the market and economy will be felt, Singhania added.
Below is the verbatim transcript of Sunil Singhania’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy.
Latha: How is the market looking at the election event? Will it move the needle significantly if the results were to go in either direction in favour of the ruling National Democratic Alliance (NDA) or against the NDA?
A: I think the initial state elections just after the union elections in 2014 were very widely tracked. The market had reacted based on the outcome in those elections. This time also the market is definitely waiting for the results of the elections, but market have seen that ultimately these kind of events whether it is a US elections or state elections do have an impact in the near-term, but ultimately what the market looks at is the growth in the economy from a medium to long-term perspective.
The other thing is that things are sort of getting better for the ruling party and there is a little bit less you can say worry about a sort of a one side election. So, overall the market seems to be quite calm and pretty stable about the outcome of the elections.
Sonia: When you talk about the outcome of the elections, what is the market watching most closely?
A: I think it is only the Uttar Pradesh (UP) state. The other states are smaller and obviously there the initial expectations are already quite mellowed down. So, UP is a state, it is the larger state, it is the state where the ruling party Bharatiya Janata Party (BJP) did very well in the 2014 Lok Sabha elections, so I think that is the state which the market is obviously watching very closely.
Anuj: There are two scenarios, a) a hung assembly or SP Congress winning - how would the market react in that case and b) if BJP comes to power in UP - how would the market react then?
A: I think both the outcomes which you mentioned would have an impact on the market. However, our view is that it is going to be a very marginal impact and that too also for a short period of time unless the results are one sided in either direction.
If someone would have told us that Brexit is going to happen and that the US elections are going the way they finally did, I am very sure people would have said that the markets would collapse. However, the market has its own way of moving around. So, I think any reaction on the upside or the downside based only on the elections is going to be very short-lived; that is the view we have.
Sonia: As you said, the reaction on this election will be short-lived from a market point of view but I want to know that in the medium-term what is the market expecting in terms of a reform agenda from a legislative perspective outside of goods and services tax (GST), even in terms of say of any kind of executive actions, etc?
A: This government has done quite a remarkable job in moving ahead quite a few of the reform processes. We already have GST which was a very long pending important issue. That has been approved, and what we hear is that they are moving forward and trying to have a July 1 rollout. We have seen a lot of move in some of the other sectors. Foreign direct investment (FDI) has been increased in some of the key sectors like insurance, defence, railways, and as you rightly said, the executive action is also happening, maybe the impact of that would be felt now.
So, our view is that this is a year where a lot of this impact would be felt. We have had some sort of speed breakers in the form of demonetisation in the near-term, but again, that has moved the economy well on its way to a less cash economy, there is much more deposit base which is there in the bank and that will have a multiplier effect. So, the market is looking more from those kinds of steps.
The Budget has been quite good; I think the revenue targets are being met. A lot of push is being made on divestment and more so on strategic divestment. We have seen so many advertisements in the newspapers; we have even heard rumours about Air India being strategically divested. So, I think a lot of strong steps are already in the planning and we do expect that in the next 3-12 months, a lot of them would lead to fruition. So, we are quite optimistic and maybe the market is also looking at that and that clearly explains the resilience in the market despite all the data which is coming up post demonetisation.