Indian equity markets, which gained nearly 10% in the previous quarter, could see some correction in the current quarter, says CLSA’s Christopher Wood of the ‘Greed-&-Fear’ fame. Wood feels the recent rally was on account of Narendra Modi’s ‘bid’, and the emergence of the Aam Aadmi Party (AAP) has ‘complicated’ the election outlook.
According to Wood, whose ‘Greed & Fear’ newsletter is widely followed by investors globally, elections would be the most important political event in Asia this year and investors should focus on Indian politics at the start of next quarter.
“The most important political event in Asia this year is the general election scheduled for May,” says Wood in his ‘Greed & Fear’ newsletter released on Thursday, adding the “best hope of a new investment cycle in India is a decisive victory by Narendra Modi in the election.” “But with the stock market having rallied last quarter on a Modi 'bid', it would be no surprise to see a market pullback this quarter,” he says.
In his newsletter on November 21, 2013, Wood had said that Modi’s win could be defined as the Bhartiya Janta Party (BJP) winning more than 200 seats. In the latest newsletter, however, Wood says the recent performance of AAP in Delhi elections has created a complicated scenario.
“The outlook has clearly been complicated by the momentum surrounding the anti-corruption Aam Aadmi Party (AAP),” he says, highlighting the fact that the Kejriwal-led party won a strong 29% vote share and 28 of 70 seats in Delhi election and subsequently formed the government.
Wood is, however, quick to add that from a stock market perspective, the emergence of AAP is “worrying” as the policies of the newly-formed party appear to be “overtly populist, if not socialist” while highlighting the recent power tariff cuts imposed by the party in Delhi.
Wood is of the view that the AAP’s success is an evidence that social media can bring spectacular success though ultimately a proven track record of governance would achieve results. “Ultimately, the lack of experience in government should lead after the initial novelty value to a swing back in favour of those with a track record of achieving results in government. This is at the heart of Modi’s electoral appeal following his 12 years as the CM of Gujarat,” says Wood.