Political Cues To Overrule Global Cues

Huge voter turnouts have been a highlight of the recently held state elections in the four principal states of Rajasthan, Madhya Pradesh, Chhattisgarh and New Delhi. This essentially points towards the fact that people are vying for a change. The change that we are referring to here is not essentially a change in guard, but a change in the environment and the way our democratic establishment is functioning. Good governance, a responsible polity and a strong leadership is the need of the hour and the aam janata seems to be seeking just that.

The outcome of the state elections is critical from many different points of view. From the markets perspective, it would certainly be a pointer towards what can be expected in the General Elections to be held in May 2014. The street is keener on a change at the centre. A lot of the productive time over the past three years has been spent waiting for the government to put its own house in order, so that it can focus on the larger macro economic factors that really needed attention.

Although, suddenly over the past three months or so there has been a mad scramble to salvage the situation trying to take forward reforms and ensure that growth returns, the real impact of the measures is yet to be felt. The economy in general and business in particular cannot be taken for granted by policymakers. Lack of foresight has probably led to the situation getting out of hand. And this is where the change in guard comes to the fore.

The markets will certainly cheer the early indications from the exit polls which are putting the BJP in a driver’s seat atleast in the four principal states. This is also an early indication of the outcome that can be expected in the general elections. The consensus on the street is strongly in favour of a change. A strong leadership with a faster decision making capacity is what will put the economy back on the growth path. After two dull days, today’s market action could revolve around this factor pushing them higher.

Global cues however are not too supportive. After having opened in the red, European markets turned course on talks of the US reaching a budget deal which will avoid another government shutdown like the one that happened this year. But the US markets fell for the fourth straight day on the same worries. Some good economic data points that have come in are reinforcing the fear of tapering. Accordingly the Fed is expected to begin the taper somewhere at the end of this month.

However, Asian markets are mirroring those fears and trading lower today. Except for Malaysia, all other markets are currently trading in the red. Japan is down half a percent, followed by Hong Kong which is trading 0.22% below its yesterdays close. Taiwan, Korea, Indonesia and China are all in the red, though marginally as of now. The Taiwan Weighted is down 0.20%, while the Seoul Composite is 0.15% below its previous close. The Jakarta Composite is trading a quarter percent below its yesterdays close as of now while the Shanghai Composite is hovering on the borderlines. The worst performance as of now is that of the Singapore market. The Straits Times is trading 22 points (0.70%) below its previous close.

We remain a bit skeptical about the US taper fear. The sell off that the US markets are witnessing over the past four days could well be the year end profit booking which anyways was expected.  The most interesting indicator on the global front today is the SGX Nifty which is trading a whopping 84 points up as of now. This is what could happen to the Indian markets as well. The political scene will be the biggest driver for the markets here and you could well see a good gap up opening and a positive trading day before you close the week tomorrow.