Anand Rathi Shares and Stock Brokers

We are positive about the Indian economy due to improvement in macro data and no immediate event. The political events do create some volatility in the equity market due to hopes and fear of the future actions that the new government may take.

For example, we have seen in the past that government's actions such as infrastructure spending, waiving off farmer loans, implementing ban on alcoholic beverages, etc do have an impact . Companies that are highly regulated or licensed and those that deal directly or indirectly with governments are normally impacted.

However, now that the key event of state elections is behind us, equity market seems to be jumping the wall of political worries. The index of industrial production (IIP) & consumer price index data (CPI) released on Wednesday were encouraging.

The IIP was 8.1 percent in October 2018, an eleven-month high. The highest growth was seen in consumer durables, at 18 percent, in October up from 7 percent in the previous month. Among major industries, machinery and automobiles rose to 22 percent and 16 percent, respectively, in October.

The retail inflation in November, beating expectation, came down to a 17-month low of 2.3 percent owing to deeper deflation in the food category and to even lower house rent inflation and fuel and light. Core inflation, too, cooled off, but is nevertheless above 5 percent, still a slight concern.

Investor confidence in Indian assets had only recently bounced back, helped by a slide in oil prices and a dovish tone from the Federal Reserve. November saw the best rupee gains in nearly seven years, while local stocks saw their best month since July.

But looking at a bigger picture, Indian market has gained on five instances out of seven, an year before General Elections were held since 1989, excluding year 2009 which was driven by the US recession. The data suggests that irrespective of the result, in the long run, markets will overweigh economic strength and growth potential of the country over any other event.

We believe the Indian economy in 2019 will keep growing faster than 2018 irrespective of elections due to the demographic young population and their demand for better lifestyle, goods and services. It is important to have a stable government at the Centre which will be able to implement the much-needed reforms for the Indian economy to keep growing at fast pace.

The author is Vice President - Equity Advisory at Anand Rathi Shares and Stock Brokers.

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