BofA-Merrill Warns Against Extreme Euphoria Around Polls - The New Indian Express

BofA-Merrill Warns Against Extreme Euphoria Around Polls

Published: 27th March 2014 01:32 AM

Last Updated: 27th March 2014 01:32 AM

A new report by global commercial and corporate banking giant, Bank of America-Merrill Lynch (BofA-ML) cautioned against too much importance being attached to the outcome of the 2014 general elections and economic growth cycle.

The report notes that global economic cycle drives growth and not ‘who rules New Delhi’.  “We can only emphasise that the global economic cycle drives growth far more than who rules in New Delhi. It is for this reason we caution against extreme euphoria ala 2009 or utter despair ala 2004 on May 16,” a BofA-ML report said.

Rise and fall in Sensex numbers have been attributed to political announcements in the country lately. A report titled ‘Will markets be third time lucky? Three big ifs: Polls, the El Nino, and the dollar’, the banking giant’s India Chief economist Indranil Sen Gupta said the consensus among equity investors is to go along the polls in the hope of a successive stable coalition.

Markets saw a 15.9 per cent sell off in May 2004 after the BJP-led NDA was defeated while there was a 15 per cent sensex rally after the incumbent Congress-led UPA was re-elected, the report said.

“Forex investors are more circumspect; most say they will square off before the polls to avoid the event risk.”

On the way the markets reacted after the 2004 results (15.9 per cent fall and in 2009 15 per cent rally), Gupta said it was primarily because it ignored the impact of the global cycle that has driven growth far more than who rules in the Centre.

On growth, he said economic expansion is far less sensitive to poll results than stock markets and it has gone up and come down in every political regime, broadly in tune with global cycles.

On the rupee, Gupta said, he continues to believe that the principal risk to the rupee comes from a potential rebound in the dollar, especially as it has weakened to 1.38 euro. Our forex strategists forecast the dollar at 60-65, he said.

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