Most experts feel that election results and market growth are inter-linked since the government’s willingness to take reforms forward gets highlighted during elections and it may have a positive impact on the market.

Abhay Aima, Director, HDFC Securities, in an interview to NDTV Profit said that an 8 per cent GDP growth is achievable only when the government comes out with some policy action.

Commenting on the kind of impact the upcoming elections may have on the market, he said, “UP elections are very important from the market perspective,” adding that the outcome in Punjab and Uttarakhand elections is more of a sentimental impact than an economic impact.

Aima further said that valuations of the Indian market look attractive and one should look at the historical valuations as well.

Below is the complete interview. Also watch the accompanying video.

What is the reason behind this 20 per cent move the market has seen since the last one month?
 

The valuations have come to a very attractive level. The money flow came in because of the valuations. People were bearish and were not holding large positions. After that a combination of fresh money and short covering came in and the result is January’s rally.

You remained bullish even when the market was not doing well...
 

Yes. My basic premises is that we are still talking of a 7 per cent GDP with all the negatives, i.e. inflation, interest rates and the rupee-dollar equation being where it is. More importantly, the government has being in an action for the last two years and the credibility that the government had to suffer.

India today is dependent on infrastructure. So, given all that, when the country is still at 7 per cent, then it is not a bad deal. If you look at the world, Europe has had flat growth; the US has done about 3 per cent. Hence, on the international level, we have done quite decently, which we fail to recognize.

In the absence of any significant earnings performance, how can we put a steep valuation premium for India compared some other developing markets?
 

You have to take a broad-based market for comparison. Each market has its peculiarities and it is a very good thing. But as an investor, it is not good to compare things. If you have to look at India, you need to see India in terms of historic valuations. 

Look at inflation, so you are basically looking at 17-18 per cent including inflation. So given the multiple of 15 per cent, it is very fair even if you do a fundamental analysis of the situation. You have to look at historical valuations of India.

How do you see the elections vis-a-vis the impact on the government and vis-a-vis the ability of the government to bring a reform?
 

Normally, I don’t link elections to the stock market. You have Punjab, Uttarakhand, Bihar and UP elections. However, while the outcome in Punjab and Uttarakhand is more of sentimental impact than actual economic impact, the UP elections very important from the market perspective. 

If you have to look at 8 per cent GDP the only way that can happen is when Government comes out with some policy action. Besides the image problem that the government has, it has not been able to a lot of things. Depending upon what happens in UP, will depend upon what happens in budget because budget is after that.

Even post the elections, if the government has the willingness to bring the reforms, which have been on the back burner, do you think for long term investors, this could be a good entry point.
 

Yes it could be. Hypothetically, is the Samajwadi Party gets an absolute majority in UP, then you have a Mamta like scenario. But as I said if the Samajwadi Party favour Congress, then I would go by what the finance minister or the planning commission said that there are steps they realise they haven’t taken because of political compulsions. So, if that is their stated policy then if the atmosphere is conducive and then there is no reason why they would not go and take those steps. 

And in terms of sentiment, in terms of going forward, it plays a very important part. It may not have immediate results, but in terms of perception of the industrialists and international players, it would be very important.

What is your perspective on the infrastructure sector? Do you think the Indian infrastructure story is still alive and kicking?
 

I have always believed that the India story is still the infrastructure story. If don’t get the infrastructure story right, then there is no point. In the last two years, the sector unfortunately was dependent on what the government is doing. A lot of decisions depend on land acquisition, approvals, etc.

This is also an industry, which is very much dependent on the interest rates. If the UP elections go the way I think they will go, then the government in action is going to come, which will directly or indirectly benefit infrastructure. Also, interest rates look to be at downward trend, this will benefit infra sector. The sector will come to foray and get help on the technical side.