India's New Economic Stimulus: Election Spending
The spin-off effects of poll spending and post-election revelry could help businesses like liquor, auto and FMCG. Money spent in country-wide campaigns and large cash dealings may lead to a surge in demand for a while in these sectors.
Political parties receive donations running into hundreds of crores from industrialists and builders who may be disclosing a fraction of what they actually dole out. This money moves around the cash economy during the weeks before the poll and also boil over into post-poll spending.
As a large number of party workers and prospective voters participate in campaigning, cash is spent in a way that keeps the morale high. "Sale of alcohol shoots up during elections. With increase in money supply, especially in rural areas, demand for personal care products are also likely to go up," said Edelweiss Securities in its report 'India Election Watch' .
Auto sales are also expected to improve as there will be more demand for vehicles, particularly special utility vehicles (SUVs), for election campaigns, personal transportation and security of politicians, said the report.
Everyone is not so optimistic. Analysts feel that political spending may be subdued this time, given unfavourable market conditions. "Flow of money in this year's elections may not be strong because of the sluggish economic scenario and crash in the property prices," said Ambareesh Baliga, vice-president , Karvy Stock Broking. But he felt that demand for two-wheelers , SUVs and FMCG goods will rise—the extent of which would depend on the kind of money that various parties are willing to splurge.
Since any change in demand outlook for these select sectors would be short term in nature, it would not significantly market sentiment. "Investors would be more concerned about the long term prospects of the industry as a whole, which is currently reeling under domestic and global economic blues. Any short term trigger would not help much in regaining investor confidence," said an analyst on condition of anonymity. Political parties are currently sorting out differences with key allies and issues relating to seat sharing in different states.
These pre-poll issues have apparently led to concerns in the market over the fate of Congress-led UPA and BJP-led NDA. Though Dalal Street players may closely follow the political developments, the market is unlikely to see big swings until the results are announced. The formation and structure of the new government will decide the market's direction, said the Edelweiss report.