How Does The 2019 General Election Results Alter The Market Dynamics For India?

The stock market indices and the share price of the companies listed on these indices constantly keeps changing due to company related factors and market-related factors. The company related factors are usually its annual performance in terms of revenue generated, market size captured, innovative product/service offered, capturing various synergies that derive its value on the index, etc. The key elements that drive the market-related factors are the macro events that take place which dictates the direction in which a particular company or the whole industry tends to move towards.

The prominent macro events such as inflation, monsoon, trade policies, financial factors, trade war, oil prices, global markets etc. are a few to name. But, one of the most crucial factors is the government that is ruling the country as it’s the epicentre of all the policies, reforms, schemes and decisions made in the country which acts as an indicator of the road which is ahead to come. Hence the importance of the motto and ambition of the incoming government is so crucial. However, the market overall will tend to thrive in the long-run irrespective as to which government comes into power.

As seen in the table below are the annual returns derived by the BSE index over the tenor of the ruling government. Here, it’s clearly visible that the returns derived from the market index have more to it than the party ruling the government.  

The markets always hope for a stable government at the Centre so as to have consistency and stability in the economy as the government is the sole authority of framing the prominent economic policies of India. The foreign players generally prefer to invest in economies that have a stable government with strong policies with long-term visibility. The Indian equities have witnessed foreign inflows worth a net of $6.7 billion from January to March, which is more than the outflows of $4.4 billion in 2018. This optimism has kept foreign investors bullish on India and the market is benefitting from huge emerging market inflows.

India is set to emerge as a USD 5 trillion economy over a period of five years and as a USD 10 trillion economy eight years after that. This gives a clear indication of the growth prospects and the sectors in which the opportunities will arise on these lines. In terms of fundamentals of the country’s economy, its inflation has come down from over 10% five years ago to about 4.6%, the fiscal deficit has come down from almost 6% to 3% which are very important indicators. We have already grown in the last five years from being the 11th largest economy in the world to the sixth. This has led to ease in the monetary policy (which we already have started to witness) which in turn can boost consumption.

To attain this kind of scales, the country needs inclusive and sustainable growth. And for this, the focus needs to be on physical and social infrastructure. The government has been taking a number of initiatives to address and correct the imbalances in both the economic growth and development of the country. BJP’s election manifesto this time around was focused on infrastructural development which has already started to witness growth from the ground level during their last tenor.

The government is expected to make a capital investment of Rs 100 lakh crore by 2024 in the infrastructure sector as well as announce a new industrial policy to improve the competitiveness of manufacturing and services. This has given a more optimistic outlook going forward. Hence, companies of sectors such as Infrastructure, Power, Capital goods, Manufacturing and Construction will witness significant progress and growth over the government’s next tenure. Some sectors such as FMCG, IT, Metals. Pharma keeps growing irrespective of the election cycles.

With the progressive economic steps of implementing Goods & Service Tax, De-monetization, the government looks to roll out further steps to organize and streamline the conduct of businesses and trades. Hence it would advisable to avoid the sectors or companies which have an unorganised structure and a low sustainability business model.

The Modi government’s return to power is likely to propel the agriculture sector stocks as well. New agricultural reforms, policies, financial aids availed to the farmers and the export policies and incentives has improved the quantity and quality of the output which can be used for domestic consumption as well as for exports.  This will leave more money in the hands of farmers which will be spent on buying tractors, cars and two-wheelers in the rural market.

The power sector has also witnessed a significant improvement in energy deficit situation over the last four years of the tenure. The country’s energy deficit, which remained in the range of 8% and 10% during 2011-13, has improved in FY14 to 4-4.5%, and subsequently contracted to a mere 0.7%.

With the implementing of Housing for All, Rural Development & Electrification, Smart City Projects, development of roadway and waterway connectivity, and many such policies being already rolled on and many being in the pipeline as well, industries that have been directly linked with these schemes and policies such as construction, building materials and accessories etc. will directly benefit from the same.

Banking sector stocks are also likely to rise since sales in the auto sector, demand for housing loans and agriculture loans will lead to a rise in their loan books. The re-organisation of the increased banking NPA’s has also propelled these stocks towards profitability. Also, banking stocks have been at the forefront of almost all rallies on the benchmark indices.

The Make in India policy and Start-up incentives provided by this government is expected to increase the employment opportunities in this market. With the kind of global recognition India is gaining throughout has been reflected by the way other economies and government is viewing India as an investment destination. This has led to strengthened relations with major member nations giving the country a much greater economic, financial, technological and political horizon to look forward to.

Though many of the investors have a different philosophy and they prefer not to try and time the stock market. They prefer to stay invested for a long time and usually have a diversified portfolio which can smoothen the impact of the immediate volatility of the market. However, analysis of this event helps to not only smoothen the immediate impact of the volatility in the market but also helps to plan the portfolio reshuffling. Thus, understanding the vision and policy-making of the government over the next tenure will help to identify the sectors that will grow in the upcoming tenor and investing in the most efficient business model of the company in that particular sector can give the investors multi-beggar returns. 

Dhrumil Wani
Team Leader – Equity Research & Valuation
(M.Sc. Finance, NMIMS – Mumbai. Batch 2018-20)

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The union government agreed with the merger on Jan 2, 2019. Union Minister Ravi Shankar Prasad says the merger will allow the combined entity under Bank of Baroda being the leading power. This means that BOB will be the transferee bank and Dena bank and Vijaya Bank will be the transferor bank. After the merger BOB will be the third largest bank in India in terms of Assets after SBI and HDFC Bank. The merger will be completed by 1st April 2019. And after the Merger BOB will be the second largest public sector bank in India.

Merged Entity

The total business will rise  from Rs. 10.3 trillion to Rs 14.8 trillion. The deposits will rise from Rs. 5.8 trillion to 8.4 trillion. The NPA will increase from 5.4% to 5.7% because as of now, the net NPAs with Dena bank is 11%.The financial of BOB will be diluted during the initial phrase of merger, mainly because of the bad loans of Dena Bank. Also, technology change, possible NPA (non-performing asset) provisions requirements etc. are likely to take a toll on near-term earnings of BoB” said Lalitabh Shrivastawa, assistant vice-president at Sharekhan. There is no retrenchment of any employee in the merged entity. But there are chances that some of the branches can be closed because of multiple presence in key locations.


All the employees of Dena bank and Vijaya Bank will come under BOB. There will be no change in their services or working conditions. This merger will help to create a strong, global competitive bank with Economies of scale and enable realisation of wide ranging synergies. Because of enhance range of services, general public as a whole will be benefited. The government hopes that the economies of scale and wider scope would position the merged entity for “improved profitability, wider product offerings, and adoption of technology and best practices across amalgamating entities for cost efficiency and improved risk management, and financial inclusion through wider reach.”

Swap Ratio

The swap ratio has been finalised for both Dena bank and Vijaya Bank. According to the scheme of Amalgamation, the shareholder of Vijaya Bank will get 402 equity shares of BOB for every 1000 shares and in case of Dena Bank, people will get 110 shares for every 1000 shares. The swap ratio seems to be in favour of BOB. As according to the closing price as of 2nd January 2019, the ratio is 27% sharp discount for Dena Bank and for Vijaya Bank, it is at 6% discount.


The three banks have strengths of their own, which will help the merged entity. Dena Bank has relatively higher access to low cost current and savings accounts (CASA), Vijaya Bank is profitable and is well capitalized and BoB has extensive and global network, as well as good product offerings.

The amalgamated banks will have access to a wider talent pool and will have a large database that may be leveraged through analytics for competitive advantage in a rapidly digitalising banking context. There will be a flow of benefits because of wider reach and distribution network and there will be reduction in distribution costs for the products and services through subsidiaries.

Apoorva Goenka
Team Leader- Equity Research & Valuation
(MSc Finance, NMIMS Mumbai. Batch 2018-20)

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