Hindsight is 20/20. If the signs of such a narrow win for the Bharatiya Janata Party, two much more forceful coalition partners and a slide in the prime minister’s popularity had been more apparent, India’s stock market and scores of investors and traders may have made very different choices at the start of this week.
Did someone lead the market to believe the outcome of a thumping majority for the party was in the bag?
On May 19, in an interview to a television channel, Prime Minister Narendra Modi said the stock market would break records on June 4, a clear nod at the possible outcome on counting day – and a clear indication that he was assuring people of a resounding stock market rally post result.
The Union home minister, Amit Shah, was less coy with his take; his exact words in another television interview were, “I suggest you buy (shares) before June 4. It will shoot up.”
Both comments were made by two of India’s most senior political leaders, speaking while in office, exhorting people to buy stocks and go ‘long’ on the stock market. A final event sealed the deal. In the weekend before India counted its votes, a slew of exit polls placed their predictions to the audience. The India Today-Axis My India exit polls predicted that the BJP-led National Democratic Alliance would win between 361 to 401 seats in the polls, up from the 303 seats it won in the 2019 Lok Sabha elections. Today’s Chanakya also predicted that NDA would win 400 seats. The News18 mega exit poll predicted 370 seats for the NDA, Republic TV-P MARQ at 359 and several others pointed to a clear cruise for the BJP past the halfway mark, embellished by support from its partners in the NDA.
On Monday, June 3, having seen both the exit polls and two strong pitches to buy stocks from no less than the prime minister and the home minister, investors went all in. Indian benchmark indices closed at record highs on Monday, over 3% each. A win had been widely expected but exit polls seemed to point to a bumper showing for the BJP-led NDA.
And for the stock market, continuity is king.
Both domestic and foreign investors put their money behind this seeming pointer to success. On the same day, June 3, a day before counting in India, foreign institutional investors net bought equities worth Rs 6,851 crore while domestic institutional investors, representing Indian institutions including banks, insurance firms, mutual funds and others net bought equities worth Rs 1,914 crore.
The next day, things did not go as scripted by the exit polls.
The BJP was short of the halfway mark, and it would be able to form a government only with express support, and perhaps much more say from its allies like Chandrababu Naidu’s Telugu Desam Party and Nitish Kumar’s Janata Dal (United). Indian stocks saw their worst intraday fall since March 2020. Foreign investors dumped close to $1.5 billion worth of Indian shares. Domestic investors, that have traditionally been ‘shock absorbers’ when foreign investors sell in large quantities also sold over Rs Rs 3,300 crores. It bears mentioning that institutional money does not invest in the stock market to trade or make short investment calls, but instead to invest the money entrusted in them via millions of retail investors in mutual funds, with a goal to build wealth over the long term. They are not, and should not be in it for the punt.
Also read: Rahul Gandhi Demands JPC Probe Against Modi and Shah Into ‘Biggest Ever Stock Market Scam’
In the backdrop of Tuesday’s massive slide and a huge knock to investor wealth, Congress and the INDIA alliance believes there is an apparent market scam here and have demanded a Joint Parliamentary Committee (JPC) to investigate the role of the prime minister and other senior ministers in allegedly ‘talking up’ the market and crucially, what the financial linkages of those conducting exit poll surveys point to. Who are they funded by? Who do their pass their findings on to, or, in fact, are the findings the consequence of a foregone conclusion?
Newly minted winner of the Mumbai North seat and the outgoing Union Minister of Commerce and Industry Piyush Goyal has called the opposition’s demand for a probe a “conspiracy to mislead investors out of frustration following the opposition’s defeat.”
Let’s examine a few parts of the puzzle. The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, prohibits fraudulent and unfair trade practices including market manipulation, price rigging, accounting frauds and circulation of false information with a view to influence share prices. SEBI’s (Prohibition of Insider Trading) Regulations, 2015, also restrict and regulate trading by corporate insiders and connected persons on the basis of “unpublished price sensitive information”, as well as provide certain safeguards for handling, preservation and communication of such information.
Now, imagine a member of the Opposition bloc, Rahul Gandhi or Mamata Banerjee shilling the stock market this way, encouraging people to buy the market because it would shoot up based on a projected electoral outcome. Would they be held accountable for making these false statements and in fact culpable in stock market manipulation? Can a sitting prime minister and other members of his council go around pitching for a market rally and expressly telling investors and traders to buy stocks?
In his spirited defence of the BJP, Goyal also claimed that following the exit polls, foreign investors bought stocks at high rates while Indian investors sold and booked profits. This is downright false. Reacting to exit poll data, both foreign and domestic institutions bought stocks in heavy numbers on Monday and then panic sold the market when counting of votes the next day showed that the BJP was nowhere near figures projected by those polls.
Is it also Goyal’s case that this is the Indian government’s approach to foreign flows into the stock market – that it is okay, and a desired outcome for foreign investors to buy high and by extension get a raw deal? If I were in the shoes of these investors, I’d be, for lack of a better word, pissed. If that’s the way the country’s outgoing commerce and industry minister feels about how foreign investors should be treated, there is a serious rupture in trust. Foreign investors have bought and invested in the Indian market on the premise there is great promise in Indian companies and strong returns from stocks – not because they want to be the Hoopoe in a frankly expensive and overvalued space.
But the last word must be reserved for the Securities and Exchange Board of India. If the three Election Commissioners were often accused of being ‘laapataa’ or lost, India’s capital market India’s principal capital markets regulator has chosen to be ‘gumshuda’ – baffled, befuddled, confounded and confused.
Perhaps in the smoking ruins of this whipsaw week, there will be space for India’s market regulator to examine what its role is, where the line should be drawn on irresponsible and financially damaging commentary and whose interests it has been created to serve.
Mitali Mukherjee is a political economy journalist with more than two decades of experience in TV, print and digital journalism.
