Markets Will Cheer The Saffron Sweep.

A clean sweep in three states and a very ‘near to power’ situation in the last one is probably something that is much beyond the best of expectations that were built around these elections. The most important outcome has been the emergence of a third outfit in Delhi, the Aam Aadmi Party (AAP) which has actually been instrumental in decimating the Sheila Dixit led Congress from Delhi. In hindsight, the exit poll results seem to have been much better than the actual results from the Congress’ perspective.

One key take away from the election results is that, the electorate isn’t really taking the populist measures of the incumbent central government very seriously. Had it done so, votes would certainly have swung in favour of the ruling UPA, rather than going decisively against them. The Land Bill, the Food Security Bill and all the promises of a bright future for the masses seem to have fallen on deaf ears. The result is the Congress has a lot of ground to cover before the Lok Sabha elections, while on the other hand; the BJP will now raise its ante against the central government pushing it on the back foot in defense.

Call it a washout of the Congress or a landslide for the BJP, whatever it is; it augurs well for the markets at least for now. The Bulls will charge like mad and maul the bears severely. Following these results, the dream of a stable government at the centre, with a strong and decisive leadership looks like a clear possibility. The foreigners are certainly going to look at India a bit differently, now that they have a clear picture emerging on the change that can be expected in May 2014 of May. They have been openly voicing their votes for quite some time now which has also put the ruling party in a bit of a discomfort. FIIs will now come to India even more confidently and all this means a huge rally on the upside in the days to come.

But there is a flip side to this positivity. Remember that we are still a good five to six months away from the general elections. After its decimation, there is no scope of the incumbent government going early to elections. In these five months, the BJP, which is invigorated by the results, will ensure that no major populist initiatives get passed at the centre.  All this means the economy would keep on trudging through with difficulty until the new government assumes power and releases its shackles. Investors will witness a sentiment driven rally boosted by the positivism of the state election results over the next couple of months or so. Do keep in mind that even that could come to an abrupt halt if the US messes around with its taper talk.

For now, the week is all set to take off to a flying start. Even global cues are supporting this sentiment. European stocks had closed higher last week following the US jobs data which reflected that the improvement in the situation was stronger than expected. Both nonfarm payrolls and the unemployment rate beat forecasts and that was a trigger enough for stocks across the western world to rally. This looks contradictory, given that it should have triggered fears of a taper and hence a squeeze on liquidity.

On the Asian front, markets have opened the week on a fairly good note except for China and Indonesia which are trading in the red. The Shanghai Composite is down almost half a percent while the Jakarta Composite is trading 0.86% below its previous close. All other markets are trading positive with Japan leading the pack. The Nikkei is trading up almost 2%, followed closely by the Seoul Composite (Korea) and the Taiwan Weighted (Taiwan) which are up 0.90% each. Malaysia and Singapore are not far behind with the KLSE Composite trading up 0.41% and the Straits Times trading up a quarter percent.

The Bulls would be rearing to go and get the bears by the neck this morning. The SGX Nifty is what you should be looking at if you want to know where the Indian markets are likely to open today. The Index is up a whopping 77 points indicating a solid start to the week. The market’s exuberance over the elections results is not likely to ebb soon. However, it would be good to take note of the caveats before jumping full on into the election camaraderie and celebrations. A feel good rally is what you will see over the next few days or probably weeks.