MUMBAI: Rising political risk is going to be headwind for the Indian equity markets as next years general election draws nears, according to leading brokerages.Opposition parties emerged victorious in 11 out of the 14 Lok Sabha and Assembly by-polls.
The Bharatiya Janata Party lost the important Kairana parliamentary seat in Uttar Pradesh.CLSA said a united Opposition continues to increase political uncertainty in India.
A clean sweep (it won 73 of 80 seats) in the state in the 2014 elections was the key reason why the BJP was able to obtain to a simple majority of 282 in Parliament.
The prospects of a repeat performance in UP are dipping as the Opposition is uniting, said CLSA.the joint Opposition wins are likely to embolden the formation of the same elsewhere as well and will be a key challenge for the BJP, the Hong Kong-headquartered firm said.In Karnataka, the Congress and the Janata Dal (Secular) came together after the polls to form the government even as the BJP emerged the single largest party.Nomura said that the by-poll results will not affect the existing power structure at the Centre or in the states, but they do underline the effective tactic being increasingly adopted to consolidate into successful non-BJP fronts for electoral gains.
The firm said it expects a similar result in the 2019 general election led by the Indian National Congress.We expect political uncertainty to remain elevated in the runup to the election.
Due to the heavy election calendar, we expect the government to focus on farmers and the common man via higher minimum support prices, farm loan waivers (in specific states), social sector spending and the universal healthcare programme, said Nomura.CLSA, which also believes that the focus of the government will be on pro-poor policies going ahead, said rural and consumptionrelated stocks should do well.CLSAs top consumption picks include Mahindra Mahindra, ITC, Emami, Crompton Greaves Consumer Electricals, GSK Consumer, DB Corp, Zee Entertainment, Housing Development Finance Corp and ICICI Prudential Life Insurance Company.Elections in states like Rajasthan, Madhya Pradesh, Chhattisgarh and Mizoram later this year will be the next important political events, said analysts.