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  Opinion   Edit  14 May 2024  AA Edit | Market turbulent, but are reforms working?

AA Edit | Market turbulent, but are reforms working?

Published : May 15, 2024, 12:05 am IST
Updated : May 15, 2024, 12:05 am IST

Despite stable economic indicators, Indian stock markets wobble amid fears of political uncertainty ahead of LS polls

Despite stable economic indicators, political factors trigger volatility in Indian stock markets. (PTI Image)
 Despite stable economic indicators, political factors trigger volatility in Indian stock markets. (PTI Image)

Over the last few days, the Indian stock markets have been wobbling in spite of fairly stable economic indicators of the country. Ever since the Lok Sabha elections began, the Sensex has been on a losing streak, giving sleepless nights to investors — and the reasons are all political. 

On Monday, the volatility index had touched a 52-week high at 21.41, triggering a fear-induced sell-out in the equity markets. 

The Sensex lost nearly 700 points, forcing Union home minister Amit Shah to step in to restore a sense of calm among investors by asserting that the BJP will come back to power with a clear majority, addressing the underlying anxiety of either a minority government or a hung house. 

The Sensex finally ended the day in green and continued to remain in the positive territory on Tuesday as well. However, the volatility index, which has been on the rise since the last week of April, continues to stay elevated — the longest ever fear streak — despite unanimous opinion among economists that the Indian economy will continue to grow at over seven per cent, which is not a small feat.

A cocktail of negative developments such as the sell-out by foreign institutional investors, dismal quarterly results and strong dollar might have influenced the stock market behaviour. Nevertheless, the fear of uncertainty in the wake of a possible dip in the BJP‘s expected MP seats had the most decisive impact, which is most characteristic of a bygone third-world economy.

When the economy is heavily dependent on government policies, stock markets turn jittery when the patron — the government — is under threat. For the investors are not keen on taking bets on unexpected turns of events or unfavourable policy decisions.

After the 13-month-long Atal Behari Vajpayee government and its predecessors from other political leanings such as the United Front and the Congress, investors believed that economic liberalisation has got bipartisan approval. Economic reforms were not rolled back even though the first Congress-led UPA government was formed with the support of the Marxists. 

The current fear among investors over the magnitude of the BJP’s victory, therefore, is unfounded. Whether the BJP wins 400 seats in the Lok Sabha or 273, its government will pursue the same economic policy as it has been doing for the last 10 years as the economic policy does not require absolute majority. So why should investors worry about this detail?

Investors, however, may have a reason to worry if the BJP does not win enough seats to form a majority because the new dispensation may have its policy preferences. 

However, if economic reforms have bipartisan support as it had earlier, what is the trigger for the worry? Evidently, it could be a highly populist route that the Congress-led alliance had opted for. If the Congress-led alliance wins a significantly large number of seats even without forming the government, it could reintroduce socialist strain in the economy — something that the capitalist class worries about. 

However, it is high time that political and business classes reassess whether the benefits of economic reform are reaching every section of the society. Is the theory of trickle-down effect actually working?

Tags: aa edit, indan stock market, 2024 lok sabha elections