Investors in India must keep an eye on politics in 2018, say analysts

As Indian equities are set to close out 2017 near all-time highs — and volatility hovers near historic lows — analysts say investors must keep an eye on politics for signs of a turn in the current bullish sentiment.
 
Polls will grab market attention next year as eight states, covering a fourth of the nation’s population will hold elections over the next 12 months, brokerages including Credit Suisse noted. A setback for the Bharatiya Janata Party would surprise investors betting on Prime Minister Narendra Modi winning a second term in 2019, according to Nomura Financial Advisory & Securities.
 
Already, the current poll in Gujarat has turned into a closer than expected fight for Modi as the landmark consumption tax and last November’s cash ban stoke economic discontent in his home state. Most observers expect him to win when votes are counted December 18, though his lead shrunk as the election neared.
 
“Market assumptions so far have been of a comfortable BJP victory in Gujarat, and that the momentum continues till 2019," Credit Suisse said in a December 5 report. While general elections have a “limited direct economic impact,” changes in market sentiment could drive volatility, the firm said.
 
At risk is a 26 per cent rally that’s made the $2.3-trillion market Asia’s second-best performer in 2017 and a nascent recovery in corporate earnings. Nomura analysts say the economy “is at the cusp of a business upcycle” with the recent government policies expected to aid the revival.

Bloomberg