Markets seem to have a mind of their own, and have historically demonstrated that they discount the future far ahead in their present values. Perhaps that explains why Foreign Institutional Investors (FII) have pumped in close to USD 10 billion in 2019 alone, whereas they withdrew almost the same in 2018 from Indian markets, and barely invested a net total of USD 2.6 billion in 3 years (2015 2016 and 2017).
Markets are almost certain that Mr Modi will come back with a resounding victory, and obviously for anyone vaguely connected to the markets, one cannot fathom a NDA loss.
But hang on! History is a great teacher, and I make my argument that an NDA loss might actually be good for sharp investors and for the economy. When the obvious doesn’t happen, markets perform better. Let me explain.
‘India Shining’
The stage had been set in 2004 for a Vajpayee comeback. India was shining, and just to prove this point, it is believed that close to 500 cr (approx USD 109 million at that time) was spent by NDA in 2004, and on that historic day of 13 May 2004 as the results started pouring in, the obvious didn’t happen – markets crashed from a high of 10 May 2004 to a low just 7 days later, by a whopping 28.4 percent. That’s some fall in 7 days for the size as large as that of the Indian economy.
That was the lack of confidence in UPA or Congress+allies at that time. Yet, from the low on 11 May 2004 to the same years’ high, the markets rose by 69 percent in just about one year. And from the same low (1292 Nifty on 17 May 2004) went on to rise all the way by 392 percent by 2008 (to 6357 sometime in early 2008).
I still remember the CPI leader AB Bardhan (the moment he realised that CPI would end up being an important ally of UPA) on national television saying, “to hell with divestment of PSUs and to hell with the economy,” and within minutes the markets were locked in lower circuit. God rest his soul in peace. He did succeed in causing a serious consternation with his irresponsible statement on that historic day.
India still shone irrespective of the government. And whilst the obvious didn’t happen in 2004, the investors ended up making tons of money, and the wiser ones who weren’t in love with their stocks – and could muster the courage to buy when India allegedly stopped shining in May 2004 – and sell sometime in early 2008 – smiled all the way to their banks.
When the Obvious Doesn’t Happen, Investors Make Money
In 2008, the UPA government took some stand on the nuclear deal, survived a near death experience when the now defunct CPI withdrew its support, and the general public at large was not expecting the Manmohan Sigh government to scrape through in the 2009 polls.
In so many years, nothing happened on the nuclear front, no new reactor came to be made and nothing changed for the nuclear energy landscape of this country. But boy! +- 4-5 days from 16 May 2009 (election results date), the markets went up by 18 percent around the result time, and eventually up by 50.6 percent in that year alone, from the lowest point. And 90.3 percent in the next 5 years, till sometime in 2014.
When the obvious doesn’t happen, investors make money and governments have little or no role to play in how the markets and the economy performs.
‘Acchhe Din’ started on 16 May 2014 when Mr Modi stormed against all odds to become the 14th PM of India. And that year, because he was the obvious choice and in line with expectations of the nation, the markets rose a mere 7 percent in +- 4-5 days of the election results, and a mere 66 percent in the subsequent 5 years of his prime ministership.
I have always believed, and the same has been historically and statistically proven, that the best prime minister can add 50 basis points to the GDP of a democratic nation, and the worst can at best (with great effort), shave off no more that 50 basis points off the GDP.
Now, just imagine if the NDA was to lose this election against the common belief of the nation, what all opportunities would that scenario throw for the prudent and the hungry investor.
Real Estate – No More a Safe Asset Under NDA
Between 2004 and 2008, people could buy an apartment or a piece of land in the morning and sell it at a neat profit in the evening. That was the kind of frothiness that existed in the real estate market. Brokers in Gurgaon, roaming around in antique scooters in 2004, were driving Hummers and Porches by 2008.
The global recession in 2008-2009 didn’t help, but the real estate kept going up. The economy progressed at a better-than-expected rate despite a financial crisis that, some say, was the worst in 100 years.
Real estate, that was always considered a safe haven and an asset class giving guaranteed returns, bled to death between 2014 and 2019.
Some of my friends who bought prime real estate in Gurgaon and Delhi and Bangalore, aren’t able to sell their assets at 70 cents to a dollar, after holding their apartments and real estate for 5 years.
The point is – NDA has been a disaster for the real estate market that has historically been a safe haven, and some estimates say that the unsold inventory of apartments at a national level is at approximately 7 years. The top 7 cities have an unsold inventory of approximately 700,000 apartments.
A recent article in the Mint pegs UPA II to be significantly ahead of NDA II in almost all parameters, in spite of the worst recession of 2008 and oil at a lifetime high during that period.
Obviously, much is left to be desired from the performance of this government with regard to real estate.
NDA’s ‘Fight’ Against Corruption
Genetic mutations (Darwin’s theory of evolution) occur over hundreds of years. But the character of homo sapiens can’t be changed overnight. India, over the last 100 years, became a seriously corrupt nation. The NDA tried hard to remove corruption overnight – Aadhaar, demonetisation, watertight rules laid down by MOCA and GST.
Any nation across the planet would have hailed these steps as revolutionary and positively earth/nation shattering. But we poor Indians just couldn’t cope up with this setback. The majority of the people were not ready to weed out corruption or stop dealing in cash or deal in real estate without cash.
The result? The growth of this nation, vibrancy in the real estate market (a measure of national growth) and the common man, suffered. And suffered hard. Because no one knew how to use the digital means and banking effectively.
And this inherently ‘smart’ and ‘corrupt’ nation wasn’t ready for this dramatic shift, and that’s why the entire demonetised currency found its way back into the system (as people figured out ways around this), much to the surprise of the powers that be.
Doubting the Promise of ‘Acche Din’
If the obvious happens, which is, the NDA wins, the markets and the economy isn’t going to go anywhere – for, the Indian stock markets are trading at 28-30 times their earnings, that make the markets one of the most expensive in the world. If at all, these will come crashing down unexpectedly, and against everyone’s wishes, when the euphoria is over.
But if a majority of Indians doubt the promise of acche din, and begin to question the 15 lakhs that were to come to our accounts, and the regime actually changes, the storm in the tea cup might actually bode well for all of us.
Ye Indians, figure out where your bets are.
(Manu Rishi Guptha is currently the CEO of Niraamaya Business Group – the hospitality arm of Jupiter Capital. He holds an MBA from Warwick Business School and has over 20 years of experience in various sectors such as Hospitality, Finance, Casinos and Shipping. He lives in Bangalore and can be reached at @manurishiguptha. This is an opinion piece, and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)
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