The reverse relation between poll and stock market in pre-poll rally draws three conclusions. First, unlike the previous elections, pre-poll opinion surveys need not necessarily impact the stock market. Second, the investors, who are the engines of stock market vibrations, confide more in economic fundamentals than in hung government. Third, the trend reaffirms that the economy is bouncing back.

In sharp contrast to three months ago, when Modi wave ushered bull-run for stock market after thumping victories in Madhya Pradesh and Gujarat, the wave is being replaced by the upturns in the economic fundamentals. Current account deficit plunged and is tending towards the comfort zone in the external economy. In June 2013, current account deficit ratio to GDP was 4.9 per cent. It tumbled to 0.9 per cent in December 2013.It helped RBI governor to catapult Rupee value to Rs 61 per US Dollar on March 19, 2014 from a record low of Rs 68 .85 per US Dollar on August 28, 2013. During April –February 2013-14, exports surged by 5.1 percent amidst sagging world economy and against the drop by 2.6 percent in the corresponding period last year. Import slipped to a fall by 8.7 per cent, helping in narrowing the current account deficit. The fundamentals boosted FII’s confidence in Indian economy and reaffirmed that the economy was bouncing back to the growth trajectory. Till December 2013, the economy was viewed fragile with rare chances to revive in the current fiscal year.

For the first time since December 2013 retail inflation dropped. Measured by CPI (Consumer Price Index) retail inflation nosedived to 8.10 percent in February 2014 from 11.16 percent in November 2013. Concurrently, the national inflation, measured by WPI (Wholesale Price Index), slipped to downtrend. Food inflation – the spoiler of kitchen economy of middle and poor class –dropped to 8.1 per cent in February 2014 from an alarming high of 19.1 percent in November. 2013. It outsmarted the credibility of development by the former Chief Minister Sheila Dixit and became the main cause for her defeat in Delhi election.

Had the uptick in economic fundamentals not bounced back, was Modi wave enough to prop up FIIs’ confidence, asserted by market speculators. It is a misbelief that Modi wave alone had geared up the stock market sentiment.

Further, the Aam Aadmi Party’s sparkling victory in Delhi election and its ripples in Hindi-speaking states jettisoned Modi’s confidence. Modi wave is waning. Hitherto, Mr Modi, the prime ministerial candidate for BJP, who was planning to contest from Varanasi in order to demonstrate that he is the national leader, is now considering to contest also from his own state in Vadodara to safeguard the risk.

The bull-run in stock market was propelled by FIIs pouring funds and not by the domestic investors. FIIs were the buyers and domestic investors were the sellers. Domestic investors preferred to invest in banks’ fixed deposits, which assured higher returns for a longer period than investing in volatile capital market. Despite the bull-run, disinvestment by PSUs and IPO’s by private companies were stalled. The 2013-14 envisaged PSU disinvestment of Rs 40, 000 crore. By mid-March 2014, only Rs 7,478 crore were actually divested. There were few major IPOs stepped in the capital market to raise funds.

FIIs’ interests perked up since the returns are higher in India than elsewhere. Unlike domestic investors, FIIs’ interests are besieged by short-term gains. They are on the momentum of scurrying whenever there is an unpredictable situation. Before Delhi election, Modi wave, geared up by his accentuation as PM candidate for BJP, might have influenced the FII investors. But the euphoria has waned after the Aam Aadmi Party’s unpredictable win, leading to the defeat of Chief Minister Sheila Dikshit. They were jittery with the Delhi poll, which sent a signal of uncertainty. This led to a fall in BSE Sensex by 2 per cent in between December 9 and January 9. In January 2014 alone FIIs siphoned Rs 8,744 crore against Rs 5,810 crore in December 2013. But, FIIs’ confidence resurrected with economic fundamentals getting stronger.

Modi model of development might have been successful in Gujarat. But, it does not ensure a gainful application in the entire country, given the diversified nature of the country in terms of national endowment, human resources, infrastructures and other criterion for development. Vibrant Gujarat Global Investors Summits were mesmerising. But, in actuality, the state witnessed less pouring of foreign funds than making formal commitments. Prime Ministerial candidature of Narendra Modi and the much-expected victory of BJP in 2014 election might have enchanted the investors. But, can Modi proxy the development model on a national basis subjugating to coalition partners with non-secular face? Even though poll surveys foretell BJP victory with more than 230 seats in Lok Sabha, Modi’s prime ministerial leadership may weaken the power of coalition. (IPA Service)