Yogi Adityanath fails to get acceptance on D-St; some hope UP CM will prove everyone wrong

Team Modi’s audacious decision to put a hardliner at the helm of Uttar Pradesh, India’s largest state that the party captured last week after 26 years with a sweeping mandate in the assembly elections, seems to have not gone down well with financial markets.

Dalal Street was ill at ease when it opened for trading on Monday after the weekend political surprise, and if one were to go by the buzz, most traders took a back seat anticipating large-scale selling by foreign investors.

The benchmark Sensex was trading 140 points down while the Nifty50 was lower by some 35 points at the time of writing of this report.

The domestic equities benchmarks rallied over 2 per cent to scale new highs last week after a spellbinding show by the ruling BJP in the assembly elections, which many read as signs that the Modi regime is poised for continuation far beyond its current term that ends in 2019.

A less hawkish tone by the US Fed in its money policy review also helped investor sentiment.

But the BJP’s move to name an MP, perceived to be a hardliner, as the Chief Minister of a state that elects 80 members to the 545-member Lok Sabha, the Lower House of Parliament, and where the party actually won the recent election on the development plank, has left market analysts confused.

“I am as confused as anybody else by the choice of UP CM, a leader which has yet to show any development-oriented credentials even at the state level,” said Ritesh Jain, a macro-economy watcher and formerly a leading fund manager on Dalal Street.

Jain said UP as a state is quite behind on basic parameters and it is not as if the BJP did not have people with experience to understand and deal with the mammoth task which the party faces in the state.

“The market would certainly be disappointed with this,” he said. In the same breadth, Jain said investors who understand India will give time to access the performance.

Last week, the BSE Sensex gained 702 points, or 2.42 per cent, to end at 29,648 on Friday. The Nifty50 surged 225 points, or 2.52 per cent, to close at 9,160.

But the euphoria over the supposed endorsement of the ruling party’s bold reform moves appears to be shortlived. While at their new heights, the equity indices did raise valuation concerns, most market analysts blamed Monday’s slippage on Yogi Adityanath’s appointment as the Chief Minister of Uttar Pradesh.

Pankaj Sharma, a market veteran, said Yogi Adityanath’s appointment would be a dampener for the markets, after the excitement and optimism that the BJP's victory in the state had generated among investors.

“Because of Yogi Adityanath's image as a hardliner, there is likely to be a negative sentiment around this event. There are bound to be questions on, a) if the BJP's agenda is really inclusive, and, b) whether Prime Minister Narendra Modi will always be able to keep the fringe elements on periphery,” Sharma noted.

Team Modi’s move was tricky, as some political commentators said Yogi’s political clout was too big to ignore for the party, which has much at stake in the state. But the tradeoff could be a huge, as the move is seen to be denting the government’s image as one focused on reforms and development over petty political issues.

“The BJP move could be seen as a warning sign for foreign investors that political events in a diverse and complicated country like India can never be in only one direction and it is required to keep the expectations in check,” said Sharma.

Amar Ambani, Head of Research at IIFL, does not think the market will dwell much on any possible repercussions on account of the elevation of Yogi Adityanath as Chief Minister.

“I think everybody understands the compulsions of politics. Market participants, including FIIs, will continue to believe and hope that the thumping majority in UP will put the development agenda firmly in place. You never know, a 44-year-young CM in Adityanath, contrary to his perceived image, may just positively surprise everybody in days to come,” he hoped.