'If the NDA comes to power with 320-330 plus seats, then we could see some correction. We could possibly see a level of 19,500 to 20,000.'
'If the NDA comes to power with a majority of 400-plus, we could see the markets going to about 23,500-24,000 levels.'
'And from there we could see some correction because markets are expensive at this point of time and a correction is overdue.'
"When you're back for the third term, you are in a position to take some tough calls, which again the markets may not like in the short term. Like what happened after demonetisation," independent market expert Ambareesh Baliga tells Prasanna D Zore/Rediff.com.
- Part 1 of the interview: 'Be In Cash; About Over 20-25%'
The India Volatility index, called VIX -- the index that gauges the fear factor among market participants -- has jumped almost 70 per cent from the week beginning April 29. What's contributing to this fear among market participants?
Whatever said and done -- as far as elections are concerned, if the outcome is already known, then you really will not call it elections -- the markets are discounting (that the National Democratic Alliance led by Bharatiya Janata Party leader Narendra Modi may get only) 320 plus, because of which we are seeing that sort of a movement (in India VIX, the fear index).
The street is now again talking about (the NDA tally) could be in the region of about 320 to 330, which anyway is good because that gives you a stable government, but at the same time it is lower than what the markets had discounted earlier (400 plus for NDA), and because of which you could have one correction (fall in the stock market).
What material change could 320-plus -- instead of 400-plus -- bring in for the reforms -- social, political or religious -- that the new government led by Narendra Modi would try to unleash?
When you're talking of 400-plus, there can be major changes which could be brought in quite easily. There is a talk of change in the Constitution. All those things will be a bit difficult if it (the NDA) gets less than 400.
I'm not saying that they'll not be able to take it through. They have done that in the past. You've seen what's happened to Article 370. Whatever changes are required, they (the new NDA government) may not be able to pull through (if they get 320-plus), but 400-plus will make it much easier.
Does the market want India's Constitution to be changed? Can one interpret it this way?
No. I'll explain that in a different way. When the market prefers a specific government or a leader, it goes the whole hog.
Whether we talk about demonetisation, which led to a major crack, no doubt at that point in time, but later on the market recovered (The Nifty cracked 5.5% between November and December 2016 but from January 2017 began scaling new highs).
Markets didn't believe that demonetisation was the right thing to be done because of which the formalisation of the economy happened to a very large extent.
The GST numbers to a large extent, the way it's growing today, is a fallout of the demonetisation because when you're formalising the economy, you are reporting your revenues which contributed to more number of people coming under the income tax ambit.
Finally, the market goes with the leader saying that whatever the leader is doing should be good for the long term growth of the country.
Is the market banking upon Modi getting 400 plus so that public sector banks, public sector enterprises, the brailways, etc, could be privatised?
(PSU) banks can see some more privatisation, especially the smaller ones. There was an announcement of privatisation of couple of these smaller PSU banks, but that never took off.
When we talk of possible privatisation of some PSU companies if you see the last three-four years, we have always been behind the schedule as far as the numbers (revenues earned because of divestment of the government's stake) are concerned.
Where do you think the markets could head in case the NDA reports 320-plus seats?
I'm going with an assumption that we could head to 23,300 (the Nifty closed May 7 at 22,300).
When you're back for the third term, you are in a position to take some tough calls, which again the markets may not like in the short term. Like what happened after demonetisation. But going ahead, they (the market) may like it in the longer term. They may see the benefits of it (whatever reforms the new prime minister will bring in after June 2024) coming in the longer term.
There could be certain tough decisions which the government may take and they can afford to take in the first year of their new regime. There are murmurs that the market should correct post elections if the NDA gets 320-plus, not 400-plus.
Even the NDA getting 400-plus is already discounted to a large extent. In that case, you could have one bump up and then the rest of the concerns will come in leading to a first tough year. It could be a year of tough decisions.
The best possible scenario is 23,500-24,000 (if the NDA bags 320-plus seats in Lok Sabha).
What major reforms do the market expects if Modi get a 400-plus kind of majority in the Lok Sabha?
I do see some sort of tinkering as far as the capital gains is concerned. Every investor has made enough money so the government may feel that it's time that they shared a bit more (as taxes).
When I talk of tinkering, I'm not talking of increasing (the rate of LTCG); it could be increasing of the holding period. There will not be a major change in corporate taxation.
As far as the infra spend is concerned, the government will expect more of private capex (capital expenditure) to happen than public capex (government spending on infrastructure).
What kind of themes should investors look forward to in case the NDA wins 400-plus or 320-plus seats?
The present themes (railways, defence, PSU banks and PSU enterprises) will continue.
The railways and the defence played out in the last 12 to 18 months. The question here is the order flows have been excellent because of which we have seen all these stocks becoming multi-baggers.
Now, the question is about delivery because the order books of most of these companies are full for the next couple of years. As per the current revenue these companies can expand capacity and possibly execute those orders in a shorter period.
But then to expand capacity takes time. It's not simple. Even large companies can't expand capacities 2x, 3x overnight (increase capacity which is double or thrice their existing capacity to produce).
The question of execution would come up possibly in this year. Looking at the delivery schedule for these defence and railway companies, I don't know as to whether they will get the similar sort of order flows going ahead.
Let me talk of a specific stock Cochin Shipyard. The company has already booked next eight years' revenue. Now will you place an order now for delivery after ten years?
Is the market prepared for a non-NDA government coming to power? Or, for a scenario where the NDA just goes past the simple majority mark of 272?
None of the market participants are expecting this sort of a scenario. But like what I already said in the beginning an election is an election.
We have seen this happening in 2004 (when the market was expecting then prime minister Atal Bihari Vajpayee and the NDA coming back to power) and what happened after that? We saw a bloodbath (on May 17, 2004 the market fell 15.5%, one of the biggest cracks in percentage terms; soon after the markets recovered sharply as well).
Will there be a repeat of that bloodbath in case the NDA doesn't come back to power in 2024?
No doubt. You can write off 40-50 per cent of the index (Nifty or Sensex) easily if that happens. But the probability is very low.
As of now the worst possible scenario could be just a simple majority (272-plus for NDA).
Where do you see the markets heading if the NDA comes to power with a majority of 400-plus seats?
If the NDA comes to power with 320-330 plus seats, then we could see some correction. We could possibly see a level of 19,500 to 20,000.
If the NDA comes to power with a majority of 400-plus, we could see the markets going to about 23,500-24,000 levels. And from there we could see some correction because markets are expensive at this point of time and a correction is overdue.
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