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Market Watch | Does it really matter?

Remember what happened when this current government came to power? The market tanked and then recovered equally sharply. Udayan Mukherjee tells us more...

india Updated: Aug 25, 2007 04:02 IST
Udayan Mukherjee

At the outset, a disclaimer: I am no political analyst. What I write now does not purport to be an analysis of the current political situation, rather an observation of how markets typically react to such situations.



To my mind, the worst fallout of any likely crisis or breakdown is simply the phase of interim uncertainty till a new government is formed. That is it. My bet would be that if the markets were told that come next Monday we would have a completely new government at the Centre, it would initially plunge 10-15 per cent, recover equally sharply, forget about politics in a month’s time and carry on as if nothing happened.



Remember what happened when this current government came to power? The market tanked and then recovered equally sharply. The markets just want a functioning government at the Centre. Period.



On the margin it may have reservations about one formation or the other, but frankly whether it’s the UPA or the NDA, it’s two sides of the same coin, as far as business and markets are concerned. Just stay out of the way, keep the government machinery going in one corner, the market will take care of itself; that’s the gist of it.



I hear a lot of people moaning that reforms and policy making will take a backseat. I want to shake them and ask what reforms they are talking about. What great policy reform has happened in this country under the last two central regimes? The market just gets used to one set of people in power and resents change. When the NDA got voted out and the UPA came in, the markets reacted as if the heavens had fallen.


Then the NDA was the best thing and the UPA the worst. Now, the UPA is that great thing and the NDA enemy number one.


Truth is, what really hits the market is sentiment and a change in the environment, which it gets used to. There’s no “material” difference between what one party will/can do versus the other, unless the Left comes to power, which it won’t.



So, is a mid-term poll such a bad thing for the market? Maybe not. It’s the grinding wait for one that hurts. Nine months of lingering uncertainty is the bad thing, regular doses of rhetoric from politicians leading to that event is a bad thing as is the markets’ armchair contemplation of what all “can” go wrong. Once it is done, it will be over and behind us. Just wish it could be done and dispensed with quickly. Politics and politicians don’t deserve so much of our time and attention.



(The writer is Executive Editor, CNBC-TV 18)