Why Market Veterans Are Not Too Worried About Lok Sabha Election Results

A car drives past The Bombay Stock Exchange (BSE) building as it is illuminated at night in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

The stock market has been volatile due to uncertainty around the Lok Sabha polls. But investors can take solace from the fact that Indian equity benchmarks have not fallen in the year of a general election since 1999.

Market veterans and experts told BloombergQuint in earlier interviews that elections don't have a long-term impact and it's earnings and macro factors that drive the stocks.

Here's what they said...

Hugh Young, Managing Director - Asia Pacific, Aberdeen Standard Investments

Politics, according to Young, will cause short-term disruption as the country heads towards the general election results. “The election outcome will cause short-term jitters but unless there are major changes at the political level, I think business and life will improve for the people.”

Indian companies, driven by prospects of earnings growth, are valued at 18-19 times, said Young. “If that earnings growth comes through, as it should for many of them, it will with hindsight in five years' time look a very attractive buying opportunity.”

India, according to Young, is getting a lot more competitive today and there's scope for tremendous growth within the country.

While some of the valuations today are a cause of concern, there's more juice to come from it.

Hugh Young, MD - Asia Pacific, Aberdeen Standard Investments

Indian companies, he said, will deliver earnings growth that would justify the ratings at which the stock market is trading now.

Mahesh Nandurkar, India Strategist, CLSA

NSE Nifty 50 is likely to cross 12,000 in the next few months, according to CLSA's India Strategist Mahesh Nandurkar. The brokerage revised the target higher based on rising investor confidence, improving liquidity and earnings optimism.

The growth, he said, will be mainly driven by the banking and financial industry. Nandurkar expects India Inc. to post 15-20 percent earnings growth in the current financial year. The bullish view is based on expectations that there will be a stable government at the helm after the election. While the market has built a 70-80 percent chance of a stable government, Nandurkar said, the rally hasn't factored it completely.

Prabhat Awasthi, Country Head, Nomura

Indian markets this year will be heavily dependent on the outcome of the general election and that could have an impact on earnings growth, according to Nomura. “There is a cloth kept on (the crystal ball) and it will lift only after the election,” Prabhat Awasthi, Nomura's country head for India, said.

The situation, he said, will improve fundamentally and structurally in the second half of 2019 and that the growth trajectory is on “the mend”.

“A number of sectors which were in distress over five years have seen some sort of resolution, be it metals, power, infrastructure.”

Mark Mobius, Co-Founder, Mobius Capital Partners

Emerging markets will increasingly become a favoured destination for global equity investors in 2019 as the U.S. equity market enters a bear cycle, Mobius said. “Within the emerging market basket, India looks particularly attractive,” he said.

“Indian managements, having a very cautious stance on expenses and heavy focus on return on capital, is where investors should place their bets.”

Mahesh Patil, Co-Chief Investment Officer, Birla Sunlife

Patil is sanguine about financial year 2019-20. “Overall, we are positive of good growth in FY20. It could be the best earnings growth in the last five years,” he said.