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Market verdict dampener for Modi govt at halfway mark

By Samie Modak and Ashok Divase
November 26, 2016 10:35 IST
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Sensex up just 6.5% while the best returns were during Manmohan Singh, with the Sensex soaring nearly 167.5%, report Samie Modak and Ashok Divase.
Illustration: Uttam Ghosh/

Illustration: Uttam GhoshIn the two-and-a-half years that the government led by Prime Minister Narendra Modi has been in power, the Sensex has delivered only 6.5%, despite the initial rally.

An analysis of the mid-term returns of previous seven governments since 1980 showed this was the second-worst.

The worst return was during another National Democratic Alliance government. The 30-share Sensex, an index of the country's blue-chip companies, had dropped over 30% in the first 30 months of then prime minister Atal Bihari Vajpayee's government, which took charge on October 13, 1999.

The best returns were during Dt Manmohan Singh's government, with the Sensex soaring nearly 167.5%.

Business Standard has compared the market returns for the first two-and-a-half years of seven governments, starting with Indira Gandhi's in 1980, from when Sensex data is available.

The analysis has been done from the date of the swearing-in ceremony of PM Modi and not the election result day.

Even if the data is analysed from the election result day, the performance ranking remains unchanged. Although, the Sensex returns improves to 9% for the Modi government.

The tepid returns so far in Modi's term are contrary to the initial euphoria.

The NDA's strong showing in the May 2014 Lok Sabha elections had triggered a bull run in equities.

In the initial 10 months, benchmark indices had soared over 20% with the Sensex, the Nifty climbing to a record high of 30,000 on hopes of reforms and fast turnaround in the economy and corporate earnings.

However, global headwinds and delay in domestic earnings recovery has led to a retreat in stock prices.

"The performance in the first half has been a mixed bag. The initial returns have tapered off as the hopes have not materialised. While the current government had to inherit stalled projects and excess corporate leverage, a lot of things could have been done better," said Rajeev Thakkar, chief investment officer, PPFAS Mutual Fund.

The markets saw a secular up move in the initial 15 months of the Modi government, while the last 15 months have been choppy.

The domestic markets have suffered three significant bouts of correction -- in August 2015 following China's surprise yuan devaluation, in January this year because of global growth concerns and the meltdown in commodity prices, and the latest meltdown because of economic uncertainty created by demonetisation and risk-off sentiment triggered by Donald Trump's surprise victory in the US presidential elections.

The Indian markets have dropped over 6% since November 8, when Modi announced the recall of Rs 500 and Rs 1,000 currency notes -- 86% of the currency in circulation.

The latest correction has seen the Sensex erase most of its yearly gains and is currently trading flat on a year-to-date basis.

If the markets end the year with negative returns, it will be a second straight calendar year with negative returns in the Modi government's tenure.

In 2015, the Sensex had ended with 5% losses.

The Sensex had ended a calendar year with negative returns only twice during the United Progressive Alliance's 10-year tenure.

Analysts believe the government had the right drivers in place to uncheck recent market underperformance.

'Landmark macro reforms aimed at putting India's economy on a long-term growth path are in place. Implementation of the goods and services tax in mid-2017 will boost tax compliance and corporate efficiencies. The government's new demonetisation scheme curbs corruption. The Aadhaar-based e-governance programme allows widespread financial inclusion and is driving bottom-of-the pyramid opportunities and potential subsidy savings of $7 billion to $8 billion. The low-cost housing scheme imparts meaningful upside to the construction sector. These and other initiatives will help reverse 12 months of market underperformance,' said Mahesh Nandurkar, head of India strategy at CLSA, in a note.

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Samie Modak and Ashok Divase
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