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A weekend of reflection over the BJP’s loss in Karnataka has led to the stock market concluding there’s nothing to be worried. Usually, setbacks such as these lead to worries of whether the ruling party’s grip is loosening, whether this could lead to populist policies that could hurt the fiscal position and what all of this means for the remaining assembly elections and the next general elections—which is not very far. At 12.40am, the broad market was up by 0.7 percent and it even defied the bearish start to trading implied by the SGX Nifty.
The outcome of the Karnataka polls will certainly lead to some introspection on what went wrong. You can read in today's edition about what did not work for the BJP and the lessons it holds for forthcoming elections. It’s also not such a bad thing for the opposition to have a strong footing in states and the pro-poor promises of the Congress appear to have hit the right spot.
The main fear of investors will be if Congress manages to consolidate these gains in the general elections due next year. But the data does not point to such a trend, of the vote share in general elections reflecting the trend seen in assembly elections, writes my colleague Manas Chakravarty in today’s edition. Do read to know how voting patterns vary between state and general elections, although 2019 was an exception as it was fought in the backdrop of national security considerations.
But, the fear, writes Chakravarty, is that the Karnataka results may lead to the BJP offering freebies to voters, as news reports suggest that the poor have voted overwhelmingly for the Congress. While this could put a dent in state finances, more money in the hands of rural consumers could see their consumption appetite improve, according to a Jefferies report.
They may not need to roll out freebies though. FMCG demand in rural India appears to have turned the corner, with volume growth in the March quarter visible after a long hiatus. Today’s Chart of the Day shows that as inflation is cooling, rural consumers are coming back into the consumption fold.
The trends from inflation data are encouraging so far, and a high base effect has seen today’s wholesale price inflation report a decline of 0.92 percent. The government's moves to lower duties on edible oils and coax companies to pass on lower costs to consumers should help prices fall. A global decline in fertiliser prices is good news too for the farming sector and for the government's subsidy bill too.
If this decline in inflation sustains, gradually purchasing power should strengthen in rural India and its consumption growth should improve as well. The need for freebies will then become redundant and investors will be hoping that the government does not ditch pragmatism for populism.
Investing insights from our research team
Vedanta India: Weak economic growth can impact this commodity major
Cipla: US business momentum to moderate
Tata Motors Q4 FY23: A double-engine growth story
Colgate-Palmolive India: Pricing-led growth and cut in advertisement spends
Asian Paints: Great results do not translate into great prospects
D-Mart: Margin miss in Q4; valuations rich
What else are we reading?
Learning to live with the ups and downs of startups
In The Money | Crucial practical concepts—stop loss, margin and liquidity
The Eastern Window: Political turmoil may hit Pakistan’s link with China
Oaktree’s Howard Marks warns of crunch time for private credit (republished from the FT)
Sittwe port done. Speedy completion of Kaladan project will improve regional trade
Startups-IAMAI row: Regulations necessary to promote competition and give consumers choice
Technical Picks: KRBL, Indian Overseas Bank, Delta Corp, Bank of Baroda, Crude Oil and USD-INR (These are published every trading day before markets open and can be read on the app).
Ravi Ananthanarayanan Moneycontrol Pro
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