Religare Capital Markets recently released a study on the effect of Indian elections on the equity markets. Gautam Trivedi, MD and head of equities, India, spoke to Forbes India about the findings. Excerpts:
Forbes India: The markets are at a record high.
Gautam Trivedi: The markets are being driven by FIIs. Retail investors are actually the net sellers. Every upward move intensifies the redemption pressure on domestic funds as retail investors are cashing in. This is not a comforting scenario as foreigners are thinking that a certain party will come to power and form the government with a near majority. The domestic investors remain bearish.
FI: You have done a study of the markets based on the last five elections. What is your conclusion?
GT: This is yet another pre-election rally. We did this analysis over the last five elections and we found that there were five stocks that invariably ran up three months prior to the elections and three months after it: L&T, Mahindra & Mahindra, Zee, Maruti and Ambuja Cements. There were some companies in the midcap space that also did well, like Crompton Greaves, Bata, Siemens, Voltas and Exide.
FI: But, in general, markets are driven by foreigners…
GT: In the past, the market rallies were driven by a combination of foreigners and domestic investors. This time, it is only the foreigners. Our reliance on FIIs to drive up the equity markets has only gone up. Retail money is absent and it’s a cause for worry.
FI: Once the elections are over, how long does the euphoria remain in the market?
GT: Depending on the outcome, the euphoria is around for three months. If we end up getting a third front, it may not be a positive outcome.
FI: It seems that the cyclicals seem to rally before the elections.
GT: If you look around, investors are selling out of IT and pharma. These are the sectors where they made money. They are now getting into higher beta stocks, L&T being a case in point. There is not much appetite to put money in the second-tier infra stocks.
(This story appears in the 02 May, 2014 issue of Forbes India. To visit our Archives, click here.)