PM Modi's Lucknow Rally Next Month Crucial For Stock Markets: Expert

The next trigger for Indian stock markets will be Prime Minister Narendra Modi's rally next month in Lucknow, the capital of election-bound Uttar Pradesh, according to market expert Ajay Bagga. 

Indian stock markets have fallen sharply after PM Modi, on November 8, announced a ban on 500- and 1,000-rupee bank notes, with the benchmark index Nifty declining six per cent since then. After demonetisation, many financial institutions, including the Reserve Bank of India, have lowered their growth outlook for Indian economy.

"The first big catalyst for markets will be the PM's Lucknow rally on January 2. Does he bring in any sops or talk about any tax concessions to the segments which have got hurt (after demonetization)," Mr Bagga said. The Prime Minister, while announcing the notes ban, said the move was aimed at eliminating money laundering and black or untaxed money. The deadline for depositing the old notes is December 30. 

The next trigger for markets will be the Union Budget, Mr Bagga said, adding he expected a pre-Budget rally in stock markets, also in anticipation of announcement of sops for the industry and the middle class. 

"I would say domestic triggers will be Budget session, the pre-budget anticipation... Will the government come out with structural reforms and give some tax concessions now that a lot of pain has been taken by the industry," Mr Bagga said.  

Ajay Bagga had earlier served as the Managing Director and head of the private wealth management business of Deutsche Bank in India.

He said that "16 per cent of banking loans are to SMEs, and 24 per cent are farm-based - both those sectors are suffering because of demonetization. Any sops to traders, to the middle class which has suffered a lot due to demonetisation, I think those will be key factors to look at."

Opinion polls for the Uttar Pradesh election will also be a trigger for markets, Mr Bagga said. "If UP opinion polls show that BJP is gaining, then this market could really take off. There is some political linkage into the markets," he said.

Commenting on results of civic polls held after demonetisation, Mr Bagga said, "BJP has done very well in Gujarat, Maharashtra and Chandigarh which seems to suggest that there is a lot of support coming for demonetisation. It has been very painful, it has hurt earnings and it has hurt economic growth trajectory but it seems to have a lot of popular support."

Mr Bagga recommended buying shares of private sector banks which have suffered a big fall after demonetisation. He also suggested buying IT shares as a contrarian bet. "Trump effect will not be very strong because companies cannot bring back outsourcing because the kind of talent they get for the money they pay is not available in the US," he said.