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Impact on the stock market if Congress wins the Gujarat election 2017

December 9, 2017

A Congress win is not something that the business community anywhere in India is looking forward to, and Gujarat is no different. If the Congress wins in Gujarat, expect the stock market to go South in the next few days before recovering and reverting to existing levels. The business community does not want the Congress back but understands that India’s economic fundamentals are strong and so, the stock market should stabilize within a few days.

The last few years of UPA II were bad, at least that was the perception prevailing within the business community. The memories of big corruption scandals rolling out, policy paralysis, an ineffectual PMO, and a global slow down, all contributed together contributed to UPA’s downfall.

That perception about the Congress has not changed much in 2017, and with no change in leadership or approach to the usual politics, the business community is not going to wish Congress back anytime soon. A return of the Congress party in Gujarat in 2017 Gujarat assembly election will mean it will be business as usual and that’s not something the business community in the state is looking forward to.

On their part, the BJP has been extremely business friendly, at least that’s what the general perception is, GST and demonetisation notwithstanding. This is why, despite these major policy implementations that directly affected the people, including the business community in the past 22 years of BJP rule in Gujarat, BJP won handsomely in U.P.

It is why the BJP remains confident of an encore in Gujarat. The party high command believes the business community still backs the BJP, in the state and outside of it. The stock markets seem to reflect likewise.

So how real is the optimism and does the Congress really have a chance against a well-established adversary?
First the good news. The latest GDP numbers released by the Central Statistics Organisation (CSO) shows the GDP for the quarter July-September was 6.3%. That’s higher than 5.7% last year for the same period. That’s good news for the BJP, politically, at least for now. After having to defend jibes from Rahul Gandhi on GST and demonetisation, these numbers give the BJP the stick it desperately needed to beat back some of the rhetorical aggression from the Gandhi scion.

BJP has already gone vocal using these numbers to defend their moves of the big two reforms and hopes to convince local voters just before the elections.

Now the bad news. A wide cross-section of industrialists, financial analysts and economists believe that while India’s basic economic fundamentals remain strong unless international growth and demand pick up, the central government does not have the financial bandwidth to increase public spending at the required level to boost growth back to double digits.

The latest GDP numbers may ring positive bells for now, but the reality is that none of the core sectors like mining, coal, iron & steel, power, manufacturing, and agriculture, have turned in desired growth numbers. Therefore, if the Congress were to win, the markets can only turn negative in the immediate period but will remain tentative going into 2019 when a larger uncertainty will loom in the form of general elections.

This is why the business community prefers ‘continuity’ more than anything as the best chance to ride an uncertain storm, and that means the BJP retaining power. Any other result will only add to the uncertainty. The markets understand the challenges ahead and the fact that the Congress has no real answers, only rhetoric.

The problem is that people don’t necessarily vote based on economics and logic. Other factors come into play, and at present, those factors seem to favour BJP more than Congress. In the meantime, the stock markets will have their fingers crossed until 18 December.

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