The beginning of the beginning… For the last six months, Indian stock markets have increasingly gyrated in tandem with political developments, and rightly so. The 2014 Lok Sabha Election has just concluded. It was keenly (and bitterly) fought with virtually no issue left unaddressed in the rhetoric. Come Friday 16 May and the dust will settle on the political battlefield, even as a new battle of wits (the political alliance game) opens up. The indications are that we will see a decisive change, not only in government but (hopefully) in the governance that follows. Hence, another struggle will open up – that of actually putting promise into play.
– While markets have run up over the trailing week (NIFTY +6%, BANK NIFTY+10%) on hope, we think the path from intent to action (and onwards, to outcome) is a long and arduous one. This is the beginning of (yet) another beginning for India.
– Despite the egging on by exit polls, we prefer to remain humbly ground in scenarios. Apart from sampling bias, it is obvious that respondents can be selective in expressing their views candidly to surveyors.
– We believe our scenario-based approach that builds baskets of preferred stocks may add some value to investors, who can thus choose to position their bets accordingly on Friday and the days that follow.
– Our preferred stocks are aimed to best capture the applicable investment dynamics that can play out under each of the scenarios.
SCENARIO 1 : NDA falls short (15% probability)
SCENARIO 2 : NDA coalition around consensus (60% probability)
SCENARIO 3 : NDA coalition beats consensus (25% probability)