>STRATOSCOPE (JP MORGAN)

Election 2009 - All's well, that ends well

• Decisive mandate to UPA. Results to the National elections, declared yesterday, represent the best possible outcome for the equity markets. The ruling UPA coalition has got a decisive mandate and the Indian National Congress is placed in a dominant position within the coalition. This consolidation of power, in favor of a mainstream political party, should pave the way for decisive policy reforms across different segments of the economy, unhindered by coalition considerations.

• Economy will be the key priority. The new Government has its task cut out. Minimizing the impact of the global shock to the economy, kick starting the investment cycle and sustaining social spending will be key focus areas. These initiatives will require balancing short-term fiscal
support with medium-term consolidation. A relatively light state level election calendar over the immediate term should enable to take tough decisions early in the tenure.

• Market outlook – euphoria, followed by consolidation. Equity markets are likely to gap up 7-10% on Monday morning and the tailwind from improved sentiment will likely sustain over the immediate term. Subsequently the markets could go into consolidation mode as investors
await the Government’s initiatives. A rush of equity issuances in the short term to benefit from the improved sentiment is to be expected. But we expect the markets to structurally re-rate over the medium term, given the policy freedom available to the Government to pursue reforms.

• Portfolio stance – tank up on local growth. With a stable Government in place, we believe business confidence will look up and the prospects of fiscal consolidation will improve. We are going Overweight the investment cycle and adding to our positive stance on Financials. We are
also upgrading Telecom from Underweight to Neutral and are retaining an Overweight stance on Consumer Discretionary. We are funding the above by reducing Consumer Staples and Healthcare from Neutral to Underweight and reducing IT services from Overweight to Neutral.

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