What Modi 3.0 means for your money

To become a successful trader, you need to know much more than most people on the street. It is tough to outperform others competing for the same share of trading profits.
Image used for representational purposes only.
Image used for representational purposes only.

The surprise was not anticipated. In India’s general election, held in seven phases over weeks, voters put all exit pollsters to shame. They gave a reduced mandate to the incumbent prime minister, Narendra Modi, but also gave up a leg to the opposition. The stock market reaction of a boom after the exit polls were announced and then a bust after the election results showed that trading in stocks and derivatives is not for the faint-hearted. Those who have been regular readers of this column would know that investing regularly over the long term is a relatively safer way towards wealth creation for most of you.

To become a successful trader, you need to know much more than most people on the street. It is tough to outperform others competing for the same share of trading profits. For example, institutional investors were seen buying shares on the day the exit poll data was revealed. They were selling on the day when election results sprung a surprise. That was absolute panic. That happened to a sophisticated bunch of institutional investors who are far more resourceful than you. It is learnt from the stock market data that high net worth investors managed to sell when share prices peaked on the exit polls day and buy back when share prices crashed on the election result day.

However, that is all part of the controversy that erupted with the opposition parties demanding an investigation.

The Securities and Exchange Board of India may have to look for the trail of transactions and figure out if there was any foul play. Something similar happened in 2004 when election results surprised financial markets. As far as your money goes, political noises will settle down, and it will be time for everyone to return to work and business.

Your money

The present structure of the National Democratic Alliance (NDA) makes the government dependent on allies like the Telugu Desam Party and the Janata Dal-United. You can expect the government to jump-start programmes to help the people at the bottom of the pyramid. That could happen with the government’s surplus cash following a significant dividend payout from the Reserve Bank of India. The election result could be construed as a backlash from people with low incomes for not doing enough for them.

That means the government would enhance subsidies and extend support to people experiencing poverty. At the same time, the government may have to curb ambitions in the infrastructure sector.

There are worries that the capital expenditure that drove India’s growth in the aftermath of the pandemic could slow in Modi 3.0. While private investment slowed in the years after the COVID-19 pandemic, there are signs of a pickup. A study of the transcripts of analyst conference calls for the quarter ended March 2023 revealed signs of a pickup in the rural economy. While the urban markets continued to witness a surge in consumption, rural consumption was affected due to lower incomes and inflation. Major companies flagged that distress for several quarters. However, that is changing.

The key to your money is the outlook for interest rates. The Reserve Bank of India left interest rates unchanged after another monetary policy committee meeting. In the latest outlook for inflation, the RBI has highlighted climate change affecting the food output. Food inflation is the most significant risk ahead of the overall inflation basket. RBI has noted a sharp upturn in the prices of pulses and vegetables. There is also an increase in non-energy commodity prices that India imports.

The risk of inflation continues to remain elevated, according to the RBI. However, the dissent within the monetary policy is rising. Two committee members now called for a 0.25% rate cut to support economic growth. High interest rates are stalling businesses from borrowing more from the banks and expanding operations.

The next influencer on your money would be the Budget 2024, which will be presented in Parliament next month. The new government’s agenda would be to calm the nerves in the industry and financial markets. However, political compulsions could induce higher social spending that could influence the future trajectory of interest rates.

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