Recently market has reacted wildly tanking near two percent to the exit of TDP’s (Telugu Desam Party) from the NDA. Concerns about the continuation of economic reforms after TDP quit the government led to the broad based selling in the stock markets. Exit of TDP from the NDA after its Ministers’ exit from the Union Cabinet and the recent session strident disruption by its MPs of both the Houses of Parliament had been more or less factored by Market. Market is concerned with the shocking BJP defeat in the UP by poll and formation of alliance by the prospect of SP & BSP and its likely adverse impact on BJP’s tally from UP in 2019.
Government’s ability to take-up economic reforms bills such as new banking licenses, increasing FDI limit in insurance, opening up retail for FDI and reign-in fiscal deficit will be weakened by any instability in the ruling alliance. Any re-alignment in the ruling NDA alliance can significantly change political equations and alter the government’s focus, even though there is no immediate threat to the government.
The market expects BJP to win the next elections. Though in the minds of the investors the probability has moved down in the past six months. Gujarat poll results and more recently the UP and Bihar bypolls has impacted the investor sentiment about political stability.