A lower low may take the Nifty further down to 5,320
The market extended its losses for the second straight day on the political impasse in Delhi and selling in banking, capital goods and technology sectors. On Friday we had mentioned that the upmove on the bourses has stalled. Today the Nifty managed to make a similar intraday high as seen on Friday, but it made a lower low and ended in the negative. From here we may see the index moving sideways, and a lower low may take the index further down to its first support at 5,325. The National Stock Exchange (NSE) saw a lower volume of 49.89 crore shares while the advance decline was a poor 513:1159.
The market witnessed a flat opening as the markets in Asia were down in morning trade as hopes of fresh initiatives from policymakers to revive economies around the world failed to enthuse investors. Back home, indications of the stand-off in the Parliament continuing for the second week, kept local investors edgy.
The Nifty opened just one point higher at 5,388 while the Sensex started off at 17,769, down 14 points from its previous close. Select buying soon pushed the indices to the day’s high in initial trade. At the high, the Nifty rose to 5,399 and the Sensex went up to 17,820.
The market soon came off the highs following selling pressure from banking, technology, metal and capital goods stocks. Choppy trade and absence of any domestic triggers kept the market in the negative in subsequent trade.
The benchmarks slipped further southwards in noon trade as the European markets opened lower on profit taking after recent gains while the UK markets were closed on account of a holiday.
The market fell to its lows in the last half hour on selling in banking, realty and power stocks. At its lows, the Nifty went down to 5,347 and the Sensex dropped to 17,662.
The market closed near the lows of the day, extending its losses into the second day in a row. The Nifty settled 36 points (0.68%) down at 5,350 and the Sensex finished at 17,679, a cut of 104 points (0.59%).
Markets in Asia settled mostly lower as hopes declined about Chinese authorities easing policies for reviving growth.
The Shanghai Composite tumbled 1.74%; the Hang Seng declined 0.41%; the KLSE Composite shed 0.01%; the Straits Times fell 0.20%; the Seoul Composite slipped 0.10% and the Taiwan Weighted was down 0.12%. Bucking the trend, the Jakarta Composite added 0.01% and the Nikkei 225 rose 0.02%.
At the time of writing, recovering from their opening lows, the CAC 40 of France was up 0.23% and the DAX of Germany was trading 0.22% up. UK’s FTSE 100 was closed for a local holiday. Simultaneously, the US stock futures were trading in the positive.
Back home, foreign institutional investors were net buyers of equities totalling Rs226.06 crore on Friday, whereas domestic institutional investors were net sellers of stocks amounting to Rs356.68 crore.
Greedy pursuit of seats—crime, caste, religion, money power
Members of the Team Anna have been forced to take the election route to bring about a change in democratic governance. That, as we have highlighted in the first article (Election Games: Biting the bullet of the ballot – I) is a matter of cold numbers. How are the numbers currently being obtained? This takes us to the murky domain of caste, religion, crime and money.
There is a vicious cycle, as Anna Hazare said at Jantar Mantar—“Satta se Paisa aur Paise se Satta”. Since numbers is all that matter in a first-past-the-post system, it follows that parties go all out, even unscrupulously, to secure seats in large states. Headlines from the recent elections in UP and Punjab included the following: free flow of liquor in Punjab, Salman Rushdie and Jaipur literary festival controversy, quota for minorities, central ministers taking on CEC for violating EC guidelines on sops based on religion… For discerning political observers, these indicators are strong enough but the profile of our candidates analyzed throw more concrete evidence too. But first the good news.
The Role of education
One often wonders about the educational levels and wisdom of our members of Parliament (MPs). Data indicates that keeping with rising child literacy at the national level, electoral success too is increasingly becoming the domain of the educated. We profiled the educational background data of all candidates in the 2009 general elections, who secured top three ranks in each constituency. The data clustered candidates into three categories:
There are more from the first category—graduates and post-graduates, followed by class 10th and 12th passed candidates. To support, one would see educationally accomplished persons in the cabinet—economists, lawyers, IITians, Ivy League graduates and more. While it is too early to state who will contest elections from newer platforms, but as if to match, Team Anna has ex IPS, ex-IRS officers, eminent lawyers, and the likes.
A couple of states and small Union Territories (UTs) stand out for lower educational qualifications of their representatives. The reasons are understandable and only support the overall direction of a larger change over the years in educational profile, as in 2014, their profile is expected to only improve.
(A note on the graph: “Candidate Educational Qualification Snapshot” shows data of top 3 candidates in each constituency, aggregated at the state level and classified into educational backgrounds as per their affidavits. Color intensity is proportional to the percentage of votes polled in the constituency with DARK RED indicating highest percentages and DARK BLUE the lowest within the dataset of top 3 candidates. Blanks indicate no candidate from the said state and educational background in top 3 positions.)
Worry though may well be that the educated “illiterates” may tear Lokpal bills, or the educated but corrupt may actually do more harm than good channeling their education into personal good than societal and national. Or the concern may be the fake degrees or quality of education in itself—some may say. But more likely, the other factors come in.
Key Factor 1: A graduation degree, possibly with an LLB or post-graduation, seems the norm for a successful candidate. But beyond the hygiene factor, one would need to bring in other attributes for success.
Role of caste and religion
Caste and religion are the prime factors in electoral politics and the hotbed of caste and religion-based politics is Uttar Pradesh. Let us take the winning candidates’ share of votes polled. Uttar Pradesh stands out in terms of three-sided contests when compared to other states. This is reflected in over two-thirds winning candidates getting past the victory post with less than 40% votes polled, much higher than any other state.
Now let us look at the share of top three candidates within each constituency of Uttar Pradesh. We find that most contests are three-sided with the three of four main parties in state being the contenders.
The year 2009 is not unique in this pattern. We studied 2004, too, and found similar evidence with Uttar Pradesh standing out in tri-polar contests. So much so that the rest of India combined fell severely short of Uttar Pradesh, in terms of number of three-sided contests. See the graph below for the 2004 elections where candidates scoring over 20% of the votes polled, ended up as second runners-up are maximum in number in Uttar Pradesh.
All this data has to be seen in light of socio-political reality on ground in the state. Let’s go step by step. First, it is quite evident through consistent patterns shown, that the same issues do not hold sway as much over the electorate in the state. If this were so, one would go in favour or against the issue and a third view is generally missing. There could be sympathy wave, anti-inflation wave, against rising crime or anti-incumbent, but in most states, it would have led to and does lead to indirect favour to one group with binary contests. This begs the next question—why are issues not common amongst people? And, why issues are consistently so divisive to have three view points? The answer lies in the fact that there is no issue. Manipulative politics has shown issues of caste and religion being flared up to divide opposition vote and scrape by with smaller margins. Strategy has always worked for whoever has played it better.
Key Factor 2: For some it may be the will to serve the nation but for most mainstream parties, elections are route to power. And the latter being the case, all is fair. Caste and religion will be played up to make people vote on non-issues. One may have to adopt some of the tactics of the sharks to beat them in their own backyard.
Any practitioner of politics would tell you that converting two-sided contests to three-sided is a strategic weapon in the armoury of the Machiavellian. Behind closed doors, such acts get planned and innocuously executed publicly. While the Election Commission fumes, social media rages and masses get confused to take subterfuge in basic survival of being with their kin—through caste and religion, small acts add up to 1%-2% vote swings and convert wins into losses. Try reflecting over representative nature of the electoral democracy, in Mysore in 2004, where the winning candidate scored 33% votes polled. The first runner-up ended with a 32% vote share and hold your breath, the second runner-up with a 31% vote share. If such are the margins, and stakes to fruits of office being what we all know, anything goes—to divide the opposing vote.
Key Factor 3: Three-sided contests have to be strategized to advantage. May you be as noble and honest in your post-electoral goals, such contests are about strategy, and holier-than-thou contesting is like fighting with a hand tied behind one’s back.
While UP has been in the spotlight as the most prominent state, the practiced politics is not too different elsewhere, especially in the large states and many individual constituencies bear same analysis of divisive politics.
In the concluding part we discuss role of nepotism, crime and money in elections.
(Sandeep Khurana is the founder and principal consultant, QuantLeap Consulting services, based at Hyderabad. An ex-army officer, he is well-read and experienced in government and corporate sectors. Sandeep holds a management degree from Indian School of Business. He has interest in social media, analytics and operations. He can be reached at [email protected] or his twitter id is @IQnEQ.)
A report released by Morgan Stanley Research (Asia/Pac) states that volatility could increase going forward and also analyses the correlation between Sensex and FII flows
Morgan Stanley Research (Morgan Stanley) has released a report titled “India Strategy: Elevated Importance of FII Flows”, wherein they found that the correlation between short-term returns and FIIs flows were weak and was strong only in case of long-term returns (i.e. 12 months). It warned investors to“not assume that FII flows will lead to a higher Sensex and vice versa.”
FII flows is one of the key indicators in measuring market direction and movement, as India, at the moment, is heavily driven by foreign funds, especially routed through offshore funds. The report delved into the relationship between Sensex and FII flows vis-a-vis Beta and Correlation measurements, Morgan Stanley said.
The investment bank research arm notes that the beta of Sensex has indeed risen, and continues to do so, particularly due to the strong (long-term) correlation coefficient between Sensex and FII flows rather than underlying volatility. Beta measures how strongly two variables, in this case—Sensex and FII flows—are related. A high beta would mean that FII flows would mean a higher degree of direct proportionality to each other. The report noted, “While the economy and the markets got a substantial lift from global factors between 2003 and 2007, the beta of the market to flows was not as high as we have seen since 2008. The credit crisis and the ensuing policy lethargy explain the rising beta of Sensex moves to FII flows.”
Morgan Stanley also expects that volatility could rise as the current levels of Sensex volatility are low. It cited mean reversion as the key reason why it would increase. The report said, “absolute volatility of both Sensex returns and Foreign Institutional Investors (FIIs) flows is low. Volatility tends to be mean reverting so if anything, it tells us that volatility could rise in the coming months.” And since volatility was low and below historical average, Morgan Stanley cited that it could “revert to mean” and thus see increased volatility in the coming months.
However, the report did not mention what the mean volatility was and how far the current levels were below the mean. It also cited that the key driver for increase in volatility is likely to be affected by global factors rather than local ones.