As a brand new 2019 dawns, every stock punter and her granny is nervous about what will happen this year. In fact, every market pundit and his grandpa is talking more about politics and less about blue chips these days on 24-hour business news channels.
I find that amusing. These ‘experts’ peddle popular clichés about the devastation that will visit India if, heaven forbid, Prime Minister Narendra Modi’s majority government loses. Their most abused phrase is “beware of unstable coalitions.” This contrived (or cloned?) political wisdom is dispensed ad nauseam, even as the Nifty gyrates violently in sync with jittery global markets.
I honestly think these commentators should stick to price/earnings multiples and puts/calls/options. The minute they stray into unfamiliar political terrain, their ‘innocence’ becomes a national embarrassment.
Now here are five myths that are flogged daily on business television. I would urge unsuspecting investors to ignore or call out this tomfoolery if they want to protect their capital.
First (And Most Enduring) Myth: 2019 Will Create An ‘Unstable Coalition’
Brace yourself for one stunning fact that is never quite spoken about: Since 1999, each and every government in India, whether at the centre or in the states, whether ruled by a single party or a diverse coalition, has completed its full tenure. Yes, it’s remarkable! Even the most evolved Western democracies cannot exceed this feat.
In fact, over 70 years of independence, there have been just half a dozen years of ‘instability’ spread over three time zones: 1967-69, 1989-91, and 1997-99. But we should not read anything unusual in this ‘so-called instability.’ Because as our democracy ripened, it took deeper roots and got carved along three natural streams:
- The Indian National Congress was, inevitably, normalising its overwhelming dominance as elections got broad-based across the country. Its popular vote fell from 40+ percent to near 30 percent.
- A national Opposition ‘voice’ – and eventually party – was emerging out of the synthesis of the Bharatiya Janata Party and erstwhile socialist (or Janata Party) fragments. Its vote share rose from single digits to near 30 percent.
- Several regional parties were rising, representing sharply defined language or caste or community clusters that are a concomitant of a frequently-voting electorate. Their national vote share was aggregating to about 30-35 percent, even as each party could pull in around 2-5 percent on its own. This was bound to happen. It is a healthy assertion by social coalitions in such a spectacularly diverse country.
So, what is casually, even disparagingly, spoken about as ‘unstable coalitions,’ were actually an evolutionary phase in an otherwise rock-steady democracy.
Therefore, my dear business pundits, please never mention ‘India’ and ‘political instability’ in the same breath. It’s an oxymoron, and you would be betraying a total ‘innocence’ about contemporary Indian politics if you were to articulate such a hypothesis.
Second Myth: A Non-Modi Government Will ‘Violate’ India’s ‘Economic Model’
Frankly, our mixed/welfare economy, with a rising share of private enterprise, is the doctrine that all political parties have signed up for. While the Congress has displayed its liberal credentials over 15 years of the Narasimha Rao and Manmohan Singh tenures, the BJP has done the same under the decade of Vajpayee and Modi.
I would actually argue that Modi has been the most interventionist among this quartet, believing in a bigger state, nationalised institutions and price controls.
In fact, some of the regional chieftains, from HD Deve Gowda and Chandrababu Naidu to Naveen Patnaik, to name just a few, have been a tad more aggressive about economic reforms.
So, please quit creating a hysteria about ‘stalled reforms’ under them. If anything, I would argue that a national coalition in which regional parties have a larger voice will be bolder about experimenting with new ideas. See how flexible the GST Council, which is an innate coalition of disparate politicians, has been.
Even politically, we should never fear a coalition in our country, because India is, fundamentally, a coalition of different languages, religions, castes and other special interest groups. So if a government is formed which organically represents them, it should have the stability of a 30-wheel chariot.
Third Myth: If Congress Fails to Stitch a Mahagathbandhan (Grand National Alliance), It’s Failed
Now here is another myth that godi (lapdog) television channels propagate every evening. The minute a Mayawati or Mamata Banerjee even mildly criticises the Congress or Rahul Gandhi, they put out explosive headlines about “Maya dumps Mahagathbandhan”, “Flawed Mahagathbandhan” etc, etc. As against this propaganda, just look at the facts:
- In almost 75 percent of the country – virtually all across North, West, Central, South and Northeastern India – there is a one-on-one contest between two formations, one led by the BJP, and the other built around the Congress. So there is already a Mahagathbandhan in place in three-quarters of the Lok Sabha constituencies!
- Yet there are a few special cases – most notably Uttar Pradesh (in UP, two regionals versus BJP), West Bengal (in WB, a regional versus two nationals) and Odisha (a regional versus two nationals) – where the political boundaries are not sharply defined between two formations, with a third player in the act whose affiliations are unclear. So be it!
Fourth Myth: Only a One Hundred Percent United Opposition Can Defeat Modi
Picking up from the preceding sentence, allow me to argue that it makes tactical sense for the Congress not to have a Mahagathbandhan (MGB) in UP or WB or Odisha. Since the Congress’s core vote banks overlap with the BJP’s (example, Brahmins and Thakurs in UP), a strategically placed Congress candidate (who would not divide the Muslims or Dalits, but cut into Brahmin and Thakur votes) could actually damage the BJP. And thereby hand over the advantage to Akhilesh Yadav, Mayawati, Mamata Banerjee or Naveen Patnaik!
Think about it – what screaming television channels are claiming to be a “failure of the MGB” may actually be a clever, tactical ploy to defang Modi.
Fifth Myth: A Federal Or Third Front Government, Without Congress Or BJP, is Possible
This myth scares the hell out of market-wallahs. But relax, it’s patently false. Let’s put the various regional outfits into intelligent slots:
- There are those which can never join the BJP, ie they can only ally with the Congress. These include RJD (Bihar), SP (UP), Leftists, and perhaps NCP (Maharashtra).
- Then there are those that can only hitch up with the BJP. These would include the Akali Dal (Punjab) and TRS (Telangana).
- Finally, there are the ‘ambidextrous regionals’ who can go either way, but with an inclination towards either the BJP or Congress: (a) TMC, TDP, JMM, NC, PDP would be Congress-inclined, while (b) YSR, BJD, and BSP would be ‘genuinely’ ambidextrous, yet would prefer a formation that allows for a stronger ‘share of voice’.
So Now, Should I Buy Or Sell?
I can almost hear all you stock market investors: “Fine, thanks for giving us all this gyan (knowledge); but after all has been said and done, we have only one, the usual, question, i.e. should we buy or sell?”
Well, the point of indifference is Congress at 125, and BJP at 175.
But either way, “Don’t Worry, Be Happy.”
Just Buy or Sell based on your assessment of each stock; believe me, politics will have very little to do with how 2019 pans out for the stock markets!
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