Mumbai, Dec 11: Markets are on cloud 9 and all it took was the ruling party at the Centre to win the three state elections in the Hindi heartland. Rajasthan, Chhattisgarh and Madhya Pradesh were the three states and of them only MP was ruled by the BJP.
Opinion polls got the outcome completely wrong and the success saw markets rallying very strongly. They first rallied on the outcomes of the exit polls and then on the results itself.
NIFTY which was trading at 20K plus saw 21K being briefly touched before settling marginally lower at 20,969.40 points. BSESENSEX on the other hand which was trading at around 67K saw 68K, 69K taken out and almost touched 70K, all within six trading sessions to make a high of 69,893.80 points and close at 69,825.60 points.
The rally so far has been sharp and markets are enthused with not only the performance but more importantly, going forward that the ruling dispensation would win the general elections as well. It is this belief that is powering the markets.
What has enthused the markets is that they believe the ruling party will come back. What this means is continuity, focus on growth, infrastructure and by and large a period where development continues to happen across sectors.
The common theme was inclusive growth, a no-nonsense approach and good governance. On the economic front, there has been growth all around, a stable economy and policies and a control on inflation which has hit many western countries quite badly.
The other important factor which is hurting developed economies is rising interest rates which have made life difficult for the common man. Fortunately, India has weathered the storm and we are now in a situation where it appears that interest rates have peaked. They may not fall immediately but a further rise could be easily ruled out.
To add comfort is the fact that in the latest RBI bi-monthly meeting held on December 8, the central bank has raised the forecast for GDP and it is indeed heartening and promising.
Historically, markets in India have done well in the period leading into general elections. The best is six months prior to the elections and six months post the results. The latter depends on the outcome of the polls and could always be a variable or subject to conditions.
In the run-up to the polls, the incumbent would be odds-on favourite after the first round of state elections and would be expected to do well in the general elections as well.
Second, the opposition bloc INDIA which was created would have its issues under the leadership of the Congress after the state poll results. All of this points to the strong position that the incumbent is currently in.