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Market wishes for a stable govt, but veterans say coalition better option

They say a coalition regime actually helps keep checks and balances in place.

May 17, 2019, 01.26 PM IST
Mumbai/New Delhi: While Dalal Street has built in a possible return of the Modi government in stock prices, a few market veterans have expressed the view that coalition governments are actually a better idea for progress on the policy front.

They say a coalition regime actually helps keep checks and balances in place, which works better for the economy. Data showed the domestic equity market has delivered robust returns under coalition governments previously.

India has collation governments ever since 1989. Even the outgoing Modi regime was a coalition called the NDA, but an overwhelming majority for the BJP made it dominant in that dispensation.

BSE benchmark Sensex more than doubled during 1989-1991. Likewise, it rallied nearly 5 times under the Manmohan Singh-led UPA governments during 2004-14.

“I believe coalition governments are better for India. That is my view,” Shankar Sharma, vice-chairman and joint managing director of First Global, said in an interview last month, adding that there was data to back his contention.

“India has seen the best 25 years of growth between 1991 and 2014. Coalition has checks and balances, prevents over-centralised decision making, keeps it very democratic. If it becomes one or very few people making decisions in a complicated area like the economy, sometimes it might be right, sometimes it might be wrong,” Sharma said.

The first successful coalition government to complete a full five-year term was the BJP-led NDA regime under Prime Minister Atal Bihari Vajpayee which ruled between 1999 and 2004. However, the 30-share Sensex remained almost flat at 4,961 on May 21, 2004 against 5,033 as of October 1999.

However, the index advanced 30 per cent since Vajpayee first became PM for 13 months in March 1998.

After that, the Congress-led United Progressive Alliance (UPA), comprising as many as 13 parties, ruled for two terms from 2004 to 2014 with Manmohan Singh as Prime Minister.

“A weak coalition government is not a death knell. It totally depends upon who the prime minister is. What kind of a government it is, who is the finance minister, what role does RBI play in the interim period between the time the government is formed and the finance minister is in place to take some crucial decisions, what will the new budget look like -- will all depend on a lot of these factors,” Ashwini Agarwal, Co-founder, Ashmore Investment Management India, told ETNow in an interaction.

Market witnessed one of the biggest rallies during the two UPA governments between May 22, 2004 and May 26, 2014. Sensex soared nearly 400 per cent to 24,717 from 4,962 during this period.

"You cannot go back to the coalition era and say this decision really went wrong. Some policies will be very good, some policies will be moderately good or some policies will be bad, but nothing will be disastrous. I think coalition governments are fine,” Agarwal said.

Kenneth Andrade, founder of Oldbridge Capital Management echoed Sharma’s views. “If you look at elections in the past and the outcomes of elections in the past some of the best governance that we have had is when parties come together or form a coalition. So the mid-90s we had a coalition that was there and we had professionals who ran that government at that point in time,” Andrade said in an interview with earlier this week.

A section of the market was of the view that it did not matter who formed the government at the Centre.

According to Saurabh Mukherjea, founder of Marcellus Capital, if one looks back at India’s history over the last 40-50 years, there is very little evidence that politics have any meaningful impact on the economy or on the stock market.

Mukherjea said for past five decades, India’s GDP growth has been better than it was in the decade before. “Obviously, it will be hard to convince ourselves or others that over the past five decades, India has had some enlightened version of economic leadership, which has resulted in five decades of trending up,” Mukherjea said in an interview last month.

“…if you look at our country, there is very little proof or evidence that government X changes the policy of government X minus one. Since 1991, there has been a great deal of continuity in economic policy of various governments. Whatever policy the previous government promulgated, the next government have taken it through. There are obviously ideological differences between our political parties but those ideological differences are not with regards to economic policy,” Mukherjea said.
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