India's richest state Maharashtra, contributing the most to the national exchequer, is without a government even after a month of results of Assembly elections. Still, unmindful of what is happening or not happening at Mantralaya, Dalal Street, located just a kilometre or two from the State Secretariat is merrily showing an exuberance, as if political environment, especially at the state level does not matter to investors.
The Sensex, shot up by 530 points on Monday, the day the Supreme Court was hearing the pleas of Congress, NCP and Shiv Sena , challenging the legitimacy of Chief Minister Devendra Fadnavis and his Deputy Ajit Pawar, poached from NCP. Even on a day when the apex court has ordered that the floor test of the claims and counter-claims of BJP and its rivals' combine be held on Wednesday, November 27, there is no evidence of any nervousness in the stock markets.
What does it show? Does it mean that the global and local investors have always their eyes on the Central Government which is strong as ever under Prime Minister Narendra Modi? Does it also mean that what happens politically in Mumbai, the commercial capital of the country, has no relevance for the investing community?
The way the markets have been behaving in the last few days, certainly suggests that it sees BJP as quite a strong dispensation at the Centre, committed to carry on with reforms, some of which have already been rolled out. For instance, slashing of corporate tax from 30 per cent to 22 per cent and 15 per cent for new manufacturing units, is being seen as a big move towards weaning the global manufacturers away from countries like Vietnam, Indonesia, and even China to India. Besides, more and more clarity emerging in the Supreme Court about the Insolvency and Bankruptcy Code, has also given confidence to the markets that not all is lost on the Non Performing Assets (NPA) front and some of the productive assets can be retrieved and put back into use. The way investors' interest is centred around the banking stocks, including those of the PSU banks, reflects this confidence.
Whether this exuberance is justified in terms of economic fundamentals is a different issue but what should certainly baffle analysts as to why the market is taking a lop-sided view of the political landscape of the country. After all, India is a federal structure with the states playing a key role when it comes to real implementation of the projects and it has the power to do or undo several things which can make a difference to Ease of Doing Business.
Let's mind it, Maharashtra has been one state which is at the forefront of attracting new investment. In his first term, Devendra Fadnavis has been reaching out to global investors with several of his flagship investment events like Magnetic Maharashtra with the support of the prime minister. Besides, Mumbai itself is in the middle of important infrastructure projects, particularly the metro railway. In a situation marked by high political volatility, the investor confidence, in ordinary course, should have been somewhat jolted. But no such thing is apparent!
It is not that the economic fundamentals at the macro level that are bright enough to overlook micro events like Maharashtra elections. The markets have more or less reconciled to the national GDP being pegged at five per cent or under it while corporate earnings would take a few quarters before turning robust enough. Maharashtra contributes to over 38 per cent towards the total income tax of the country. Bulk of the country's customs duty is raked in at the JNPT or Mumbai airports, as bulk of the merchandise cargo in terms of both exports and imports is directed through the state.
The Mumbai city, despite its civic infrastructure problems, still holds a prominent place among the largest financial centres of the world while the neighbouring city of Pune has emerged as one of the frontline hubs for the information technology and manufacturing. Major infrastructure projects around the urban centres are on the drawing boards of the state government, which does not have a political stability.
Logically, it should worry investors. However, they tend to be lop-sided as well. The market indices are being more influenced by global liquidity and the policies of the US Federal Reserve than local factors. With stability at the Centre, the policy dispensation at states is taken for granted; that is not a right risk analysis.
The writer is a New Delhi based senior journalist