As India moves closer to general elections, a lot of attention would be focused on political implications to a lot of things that are happening in the economy. The impact of the state assembly elections followed by the Lok Sabha ones would also be felt by investors because of several policy decisions that will impact the value of their investments especially equities.
Around election time the government’s fiscal position may cause some worry. When a government is in power it offers several benefits and sops to different sections of society, which in turn have an impact on the government’s fiscal position. A very good example is the Rs 70,000 plus crore write off for farmers that has been proposed in this Budget.
This does not have a direct impact on the investment of individuals but it has an impact on the country’s position among analysts and economists and this can become a problem in the future if this has a negative impact.
Public sector companies
Investors also need to be alert on the position of public sector companies. As elections come close, certain decisions that might not make much economic sense, but have far-reaching political repercussions are made resulting in public sector entities taking a hit.
A failure to raise petrol prices will hit oil-marketing companies when the price of oil rises. Similarly public sector banks can be hit if they are asked to give loans in areas where there is a high default rate. This risk also has to be taken into consideration while making investments.
Election time also means a lot of promises that may or may not be fulfilled in future. These promises are used as a tactic to ensure support of people with the benefits flowing in after the next government is formed. The actual implementation can be a tough task because some of them could impose heavy burden on several areas that can turn out to be a financial hit in the future.
Change in policy
One area where every entity and investor has to be alert is the position with respect to policy. If this is political beneficial then there is likely to be a sudden change in the policy and this will impact the individual and his or her investments. It is not possible to guess some of the policy changes. This can have a large impact in terms of change in prices in shares of companies.