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NEW DELHI: Prime Minister Narendra Modi may have played to the gallery well from the ramparts of the Red Fort in his last Independence Day speech of the ongoing tenure, but Dalal Street is not really super-bullish about his prospects in the 2019 elections Dalal Street is already showing signs of risk aversion even before the countdown begins, and market veterans have built in anti-incumbency and adverse coalition dynamics as key risks to the market in the runup to the general elections.Modi made a strong political pitch for a second term on Wednesday by announcing mega plans – including the world’s biggest health insurance scheme to be unveiled in a month and a manned space mission by 2022 – and projecting himself as a leader who delivered a bold, decisive and efficient government.The domestic stock market is already reflecting pre-election risk aversion.The Nifty50 has outperformed the Nifty50 Midcap index this year by 20 per cent. This type of risk aversion happens in the pre-general election years, says Phillip Capital.“We saw similar trends in 2008 and 2013, the previous two pre-general election years. From here on, the market will bet on quality names on which the earnings visibility/guidance are strong and market dynamics will shift gradually towards the broader market,” the brokerage said in a note.Besides, the brokerage noted that there have been more declines than advances in the Nifty50 pack this year, another pattern noticed in 2008 and 2013.“The chances of strong advances in the rest of 2018 are mild, but a gradually recovery in the broader market will lead to more advances in 2019 (similar to the trend seen in the election years of 2009 and 2014),” the brokerage said in a note.Indian market is quoting higher-than-normal valuation premium relative to its emerging market (EM) peers. Ambit Capital in a note said India traded at an 18 per cent premium to the median P/E of nine EMs in last five years, which has since risen to a whopping 37 per cent.The brokerage listed elections among its five major macro risks to the domestic market. The top seven states that together yielded a whopping 226 seats to the NDA in the 2014 general elections could end up delivering only 126 seats, if the BJP is unable to block a grand opposition alliance and its own alliance with regional partners shrinks.“The investor community at large appears to be certain that the Modi-led NDA will be able to win a second term in office and will be able to do so with a comfortable majority of 300-380 seats (vs 336 seats it currently has in the 543-seat Lok Sabha ). Such an outcome will be ideal from market’s perspective, as it will ensure continuity and stability under political strongman Narendra Modi,” Ambit said.The brokerage said anti-incumbency and adverse coalition dynamics are playing out as key risks.Kotak Securities said the market expects the same BJP-led coalition to form the next government, albeit with fewer seats for the BJP.“The BJP has a slender majority in the Lower House of Parliament currently (it lost a few seats in the recent byelections) and its dominance in several states makes it vulnerable to loss of a few seats in those states,” it said.In his Independence Day speech, the PM said the much-awaited Pradhan Mantri Jan Arogya Abhiyaan (Ayushman Bharat) will be launched on September 25 on the birth anniversary of Pandit Deendayal Upadhyay.He also talked about a new agriculture export policy, India’s manned space mission by 2022 and permanent commissioning of women in armed forces.Analysts rated the announcements as positives.“While an agriculture export policy will facilitate the growth of farm income, the focus on infrastructure investments in the poorly developed Northeast is expected to enhance growth prospects of the region. The impending launch of Pradhan Mantri Jan Arogya Abhiyaan (PMJAA) with planned adoption of technology would ensure better implementation and last-mile coverage and generate employment opportunities in the services sector,” said Acuité Ratings and Research.As for fiscal position of the government to fund such investments, there has been an encouraging expansion in the tax base over the past two years, but this is yet to translate into a meaningful growth in tax-to-GDP ratio, the rating agency said.Ambit Capital said India’s GDP growth looks set to surprise on the upside in FY19, as an election-focused government pulls out all stops to gratify voters and stimulate consumption growth. However, it says, the stock market seems to be discounting this economic buoyancy more than adequately.Kotak Securities sees downside risks to earnings of the downstream oil companies in FY2019 “as India has a few state elections as also the general elections over the next nine months.”Government-owned downstream oil companies kept the prices of diesel and gasoline stable before the Gujarat elections in December 2017 and Karnataka elections in May 2018, although they did raise prices subsequently to market levels. Downstream oil companies’ earnings have very high sensitivity to small changes in refining and marketing margins, it said.Phillip Capital said in the next three months, earnings growth visibility will be a key factor to fuel the market in the absence of any major political event. It would be a while before state elections noise decides the market direction, it said.