MUMBAI: With the general elections nearing, the street is likely to start pricing in on the poll outcome in the coming months, as there is a possibility of a coalition government coming to power.
The Wall Street brokerage Morgan Stanley today said a weak coalition government is one of the biggest concerns for investors, which is a possibility in the 2019 hustings. And it is unlikely that the market will be as optimistic this time around as it was in the past election.
"The world's biggest democratic elections are 12 months away and the market is likely to start pricing in the election outcome in the coming months," the report said.
But "the market could always enter the past elections with the hope of a stronger government than the incumbent. This does not apply to the 2019 polls though where there is a possibility of a weaker government than the incumbent. Hence, it is unlikely that the market is as optimistic as it has been in the past going into the 2019 general elections," warns the Morgan Stanley report.
But the brokerage was quick to add that "overall assessment of the current state of indicators favours the incumbent. Growth is looking up, inflation is stable, farmers' sentiment is likely improving, transfers are rising, and jobs are coming back. However, the indicators may shift in the coming months-and together with them, the election outcome."
Basing its pessimism to the past five general elections, Morgan Stanley says while the usual approach of the market in the run-up to the polls is one of optimism, the big change from the past is that none of the elections since the mid-90s has started with a majority government in the run-up to the polls.
The report also identifies economic indicators grouped in five categories -- growth, inflation, farmer sentiment, direct benefit transfers -- which if in good shape can result in re-election of the incumbent government.
The brokerage feels that these economic indicators ignore the social and political debates which occupy the center stage in any election and to that extent, they are a simplification of estimating poll outcomes.