Kotal Equities Sanjeev Prasad outlines trading strategy for elections …

Kotal Equities Sanjeev Prasad outlines trading strategy for elections …

It’s election season so trade is likely to turn volatile as market participants weight various political outcomes. As of now, opinion polls predict the BJP-led NDA to emerge victorious in the polls, but equity strategists know that in a country as diverse as India, it’s futile to hazard a definite guess about electoral outcome and bet your money on it. Sanjeev Prasad, senior executive director and co-head at Kotak Institutional Equities told NDTV that markets need a stable government and not a BJP-led or Congress-led government.

Edited excerpts:

What is your sense about elections?

At this point of time, it looks like elections will have a favourable outcome. And when I say favourable outcome, I am looking at one stable government, whichever that may be. This is not getting reflected now in some parts of the market. I would look at banks, energy and power sectors, which could benefit from economic recovery or by reforms in those specific sectors. These stocks are not reflecting this, so I assume markets are still nervous about the outcome of elections.

So, even though polls are suggesting that it could be a win for the NDA, the market is willing to wait and watch for the outcome for the time being. Off late, we have seen some pick up in some of these names, which means some investors are starting to focus on the election outcome again. But it’s best to be a bit careful in these times. If the valuations are in the favour, risk reward is in the favour then you can look at some of these stocks aggressively. But if you have a big run-up in some of these names before elections, then you should look at taking off some profit, as this is a binary event and things could go anyway.

Are markets bullish on BJP?

Whether it is NDA government or UPA government, I won’t be losing much sleep over elections. If you look at last 15 months, the UPA government has done lots of good stuff its terms of progress on economic reforms. We are anyway on the right path. If you look at the macro-economic situation, most of the parameters are moving in the right direction.

However, market is probably driving its confidence on a BJP led NDA government, which could address India’s problems according to the track record of the BJP’s Prime Ministerial Candidate. We all know Gujarat is a progressive state, when it comes to economic policies. Also, people are looking at the fact that when NDA governed during 1999-2004, fair amount of reforms were done, which led the foundation of faster economic growth.

However, when we look at overall track record of India in last 20-25 years, we have seen economic reforms. And India now is in the right track as far as economic agenda is concerned.

NDA vs UPA?

BJP has been out of power for some time so we don’t know what economic policy they would follow, but in general it is perceived to be a pro-market, pro-business, pro-reform party. Assuming this continues, there is not much difference in economic agenda of the two parties. Obviously, there is some difference in their social agendas. So, whichever government comes in future the reforms will continue. But if we have a situation, where we don’t have a government or have a weak one then economic momentum we have seen in last years can be reversed.

What about the Third front and AIDMK manifesto?

If the economy has to progress then the private sector should have a much bigger role. By now everyone has understood that government owned entities cannot be good businesses, so the government should not be in business of business. Coming to third front, the math would only work if congress gets a decent number of seats and you have a third front supported by Congress. This means Congress has to get about 100-130 seats and opinion polls don’t suggest this.

And, the bigger dilemma here is that how are various factions of the Third Front going to govern together. DMK and AIDMK cannot be seen sitting on the same table, Left parties and Trinamool Congress won’t be on the same table. Similarly, BSP and SP can’t be in a coalition. Therefore third front thing looks theoretical exercise at this point of time.

What are the chances of AAP in elections?

AAP is raising the right issues. Corruption, governance are basic issues in this country. We require less of corruption and more of good governance. Now the debate in political circles is lot more focussed on economic development and governance which is a great thing. Political debate has now evolved to more pressing and relevant issues.

On one side you have a party which is focussing on economic development and on the other a party that is focussing on governance; this is great for country and democratic process. And that is the biggest take away I have from AAP.

How are 2014 elections different from those in 2009?

It was different environment that time. We were just coming off a very steep fall in the market immediately after the global financial crisis started in 2008. In March 2009, all global markets bottomed out and from then onwards we saw a fair bit of recovery. Then we had good outcome of elections in May with Congress coming out in majority and markets did well.

Now, it’s different. We had some emerging market concerns, which pulled down markets in the second half of the last month, but since then we have seen recovery. Between now and elections if markets make up mind that there would be favourable outcome, then you could see a run-up. I won’t rule that out as most polls indicate an NDA government as stable government, which markets will receive positively. So if we see a run-up between now and elections then we should be little bit cautious going into elections. If a lot of good news is factored in but we don’t have a good outcome then market could take a severe beating.

On the other side, if expectations are low then it is a better situation for us to be in heading into elections. Hopefully, if then there is good outcome markets could pick-up.

More important is to see economic reforms which have been started by the current government should be continued by the next one. A lot of ingredients are placed for faster economic growth in fiscal 2016; fiscal 2015 would still be slow.

Best bets for elections?

We are looking positively on private banks and some energy names. If you look at next 3-5 years, private sector banks could gain much market share from public sector counterparts. So, I would be looking at private banks quiet carefully and not just till elections but for longer term basis.

In energy stocks if diesel deregulation is done then in next one or two years, earnings of downstream and upstream companies can increase sharply.

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Kotal Equities Sanjeev Prasad outlines trading strategy for elections …

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