Sudhakar Shanbhag
Chief Investment Officer, Kotak Mahindra Old Mutual Life InsuranceHe plays an important role in developing and managing investment structures, processes and practices to enable customers reap benefits. He has been part of Kotak Mahindra Group in varying capacities for over two decades. A chartered accountant and a widely quoted knowledge leader in the investment domain, he comes with over 2 decades of work experience.
Elections do move markets: D-Street just not ready for any political shock
ET CONTRIBUTORS|
Updated: Dec 18, 2017, 11.32 AM IST
Politics is expected to get more attention from the market over the next 12 to 18 months. As the 2019 general election draws closer, the forthcoming and ongoing state elections are likely to be in news.
Nearly one-fourth of India population is set to vote in state elections over the next 12 months. It is also important since several large BJP-ruled states are going to polls.
The current high valuations of the stock market reflect the fact that Dalal Street is not expecting any negative political development over the next two years. The market is clearly not prepared for any unfavourable political development, such as inability of the BJP to win elections in its traditional strongholds such as Chhattisgarh, Madhya Pradesh and Rajasthan.
The market will have to soon contend with the outcome of elections in Gujarat and Himachal Pradesh, whose election results are due on December 18, 2017.
The direct economic implications of these elections would be limited, particularly after the Union Budget is presented early February 2018. But changes in sentiment could lead to market volatility.
While the election calendar is expected to trigger changes in market sentiment and volatility, the focus will be on earnings recovery, which is under way. The Nifty50 trades at 17.4 times FY2019 EPS on a free float basis and is already discounting a sharp profit recovery in FY2019.
It offers reasonable valuations on a FY2020 basis. But we can expect high double-digit profit growth CAGR for Nifty50 companies between FY2018 to FY2020. This compares with 7 per cent profit growth (CAGR) between FY2014 to FY2018 on a like-to-like basis.
Nearly one-fourth of India population is set to vote in state elections over the next 12 months. It is also important since several large BJP-ruled states are going to polls.
The current high valuations of the stock market reflect the fact that Dalal Street is not expecting any negative political development over the next two years. The market is clearly not prepared for any unfavourable political development, such as inability of the BJP to win elections in its traditional strongholds such as Chhattisgarh, Madhya Pradesh and Rajasthan.
The market will have to soon contend with the outcome of elections in Gujarat and Himachal Pradesh, whose election results are due on December 18, 2017.
The direct economic implications of these elections would be limited, particularly after the Union Budget is presented early February 2018. But changes in sentiment could lead to market volatility.
While the election calendar is expected to trigger changes in market sentiment and volatility, the focus will be on earnings recovery, which is under way. The Nifty50 trades at 17.4 times FY2019 EPS on a free float basis and is already discounting a sharp profit recovery in FY2019.
It offers reasonable valuations on a FY2020 basis. But we can expect high double-digit profit growth CAGR for Nifty50 companies between FY2018 to FY2020. This compares with 7 per cent profit growth (CAGR) between FY2014 to FY2018 on a like-to-like basis.
Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.
