Lead Story

The long and short of it

Instead of timing the market, investment in equities needs to be viewed from an asset allocation perspective

The election of Narendra Modi as the prime minister of India came as a surprise to many. Most of the opinion polls (other than Chanakya’s) broadcast on our news channels again got it wrong as they missed the final tally for the Bharatiya Janata Party (BJP) and the National Democratic Alliance (NDA) by a very wide margin.

Opinion polls have been wrong in the past as well, especially during the 2004 and 2009 elections. The equity markets are not faultless either, given that they discounted the incorrect poll scores and then went through an adjustment on the day of the results. Having been wrong twice, this time the markets were hesitant to fully discount the conservative opinion and exit polls, which did not reflect the extent of the Modi wave. 

Another problem this time around was that investors mixed politics with their views on the markets. Prior to the election results, almost everyone agreed that if Modi was able to form the government, the markets would be up. However, the same investors were also voters and if they were not voting for the BJP, they found it difficult to be positive about the markets as a bullish outcome was invariably linked to Modi’s victory. As voters, it was correct for them to focus on what should happen in India (and vote accordingly) but as investors, they should have focused on what will (probably) happen, and many missed this distinction.

Many cynics question whether the Gujarat model can be applied at the national level. We think that this is the wrong question to ask, although many parts of the Gujarat model can indeed be applied across the country. If Alan Mulally of Ford had joined Microsoft as CEO, no one would have asked whether the Ford Model of manufacturing would work at Microsoft or not.

In choosing Modi, the country has chosen one of the most hardworking men we have ever seen. How do we know that? By witnessing his presidential-style campaign, where he covered 300,000 km, attended more than 5,000 events and addressed 477 rallies in 25 states since September 2013. Before investors say that they have seen similar energy in politicians in the US, please account for Indian airports, infrastructure, roads and hot weather.

India is used to having very old prime ministers (Dr Manmohan Singh was 72 years old in 2004 when he replaced Atal Bihari Vajpayee, who, at the age of 80, was campaigning for another term). In t

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