No-confidence motion likely to be a non-event for the markets

The no-confidence motion – a first in 15 years – is likely to be a non-event for the markets as they expect the Narendra Modi – led National Democratic Alliance government to sail through easily. In the 545-member (including the Speaker) Lok Sabha, the BJP-led NDA can bank on support from over 300 members, including the 273 of the BJP, Shiromani Akali Dal's (SAD's) 4, reports suggest.

This is not the first time that the NDA – led government is facing a test of strength at the floor of the House. Back in 2003, the then Prime Minister Atal Bihari Vajpaee defeated a no-confidence motion moved by the then Congress President Sonia Gandhi. 

The two-day debate concluded on August 19 and the outcome was cheered by the stock market, with the BSE Sensex and the Nifty gaining 3.4 per cent and 3.2 per cent, respectively post the outcome.

“The markets may see a knee-jerk reaction post the outcome, but will start focussing on other global and domestic events for direction soon after. There is nothing much for them to read into as regards this no-confidence motion,” says Jyotivardhan Jaipuria, Founder & Managing Director, Valentis Advisors Private Limited.

A setback for the markets, however, was in 1999 when the Vajpaee-led government failed to defeat a motion for no-confidence in Lok Sabha – falling short of a majority by a single vote (269 – 270). The BSE Sensex slipped 3.4 per cent, while the Nifty lost around 4.9 per cent post the outcome.

FOCUS ON GENERAL ELECTIONS

Besides the other global and domestic factors, analysts expect the political landscape / alignments in the country ahead of the scheduled assembly elections in 2018-end and the general elections scheduled for 2019 are likely to impact market sentiment going ahead.

An election cycle, a likely rise in crude oil prices and upward pressure on inflation owing to food price hikes, resulting in the Reserve Bank of India (RBI) hiking rates are among the top risks to Indian equities, according to a recent Morgan Stanley India Equity Strategy Almanac: The Uphill Climb.

While Morgan Stanley rules out the possibility of general elections being advanced given an overall improvement in the economy, they expect a weak coalition government to impact execution of projects / policies and also have a bearing on growth and inflation.

Historically, markets been optimistic in the run-up to the general elections. Since 1991, every election has been preceded by a coalition government; hence, the market has had room to be hopeful of a stronger government, the research house says. 

The ‘Indian story’ will be badly damaged if the formidable Narendra Modi government was not re-elected for another term, wrote Christopher Wood, managing director, equity strategist at CLSA, in his weekly note GREED & fear recently.

Date	Nifty 50	S&P BSE-Sensex
11/5/1990	416.08	1331.75
11/7/1990	428.21	1381.17
11/8/1990	435.18	1412.17
4/10/1997	1008.35	3598.37
4/11/1997	1013.40	3633.73
4/12/1997	1003.25	3589.72
4/16/1999	1044.45	3572.91
4/17/1999	966.95	3326.98
4/19/1999	993.90	3451.43
8/14/2003	1247.75	3921.20
8/18/2003	1281.40	3977.73
8/19/2003	1277.70	4006.91
8/20/2003	1287.40	4056.60
7/19/2018	10957.10	36351.23
Compiled by BS Research
No-confidence motion dates in bold