Narendra Modi and Arvind Ketriwal hereby I describe them as Gods of Indian political arena who will dictate the future of Indian politics and possible transformation into a more investment friendly emerging market.
Arvind Kejriwal (AAP) an ex- IRS officer and a graduate of prestigious IIT, demolished Congress in Delhi elections is a smart and aggressive common man trying to tackle corruption and the thick layer of bureaucracy in India. He is hope to millions of young Indians especially in Delhi and has influenced heavily others in rest of India.
On the other hand we have Narendra Modi (BJP) who is what I call the CEO of Gujarat. The master mind in getting things right in a systematic way. His allies admire him and the opposition envy him for his superior project management, leadership skills and popularity. Media argues Modi has not done anything spectacular but I can argue equally a million times saying Gujarat state is relatively in a better shape politically, economically and security wise. I admire him for his vision and for his ability to meet his targets towards completing staterun projects which is a rare occurrence today amongst Indian leaders.
The above mentioned leaders have a very different personality but have similar mind set and that is to eradicate corruption and to revive growth. The common Indian man associates Modi with change and foreign investors see him as a route to liberalized reforms to invest in India.
Few weeks ago I issued a bullish note on USD/INR citing election risks and negative sentiment revolving around EMFX due totapering risks. I still think there is political uncertainty which would weigh on INR.
> Big states like Bihar and UP which share a massive 120 parliamentary seats of the 543 will dictate how likely BJP will form a majority . Whilst I don't believe the poll system in India due to sample size and methodology issues , the poll indicates BJP is likely to secure 1/ 3 of 120 seats in the above mentioned states. If this is true then the other side of equation says BSP,JD and SP are to take a hit which reflects the change of sentiment shift from dominant players(BSP,SP,JD) to BJP.
> My market intelligence in this states has made me aware how Modi fever is picking up in Bihar and UP but this is all speculative and has a factor of uncertainty built in.
> In my optinion market especially local funds are awaiting how BJP performs in UP, Bihar and possibly AP and pump more investments into BSE. This is going to be a very big game changer and possibly even make me revisit my USD/INR forecasts.
> Fed's taper will weigh on INR along with the expiry of currency swap facility nearing in Feb between Oil corps and RBI.
> The food inflation was a major contributor for the spike in inflation and immediate response by RBI to hike rates. This is a structural issue combined with imported inflation( Potash) due to weak INR. While structural issue does take time to be solved the imported inflation could be contained by capping and further appreciation in USD/INR. RBI has hiked rates compromising growth and I seriously think this is a issue if inflation gets out of control.
> I will end the note by mentioning that tapering sends a positive signal to global investment community i.e Fed's confidence of growth reviving in worlds largest economy. The dis inflationary environment supported by lower commodity prices should stabilize the inflation in emerging countries and support to more balance outlook for world economy in 2014. Hence it would make great sense that the climax of tapering story ends with EMFX buyers stepping in i.e growth is bought.
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