Investors have been showing a lot of love to the markets since Valentine’s Day, with the Nifty 50 up almost 2% since, as people rush to buy the dips after the massacre that is the 3QFY24 result season - but something else seems to be brewing as well.
Assuming you haven’t been living under a rock, you might have heard the term Electoral Bonds floating around. While various publications will tell you that this news doesn’t affect the markets at all, we don’t agree!
What is Happening?
A short primer on this arena should help you gain some context:
Despite backlash from various groups of people over the 5 years since its launch, this scheme has managed to attract around Rs. 9,000 crore in bonds - and guess who has received the largest amount of that donation?
The BJP recorded almost a 75% stake in this, making people question the true motives of this scheme, including the Congress (that has a mere 12-13% stake) which made it a point to mention this in the Black Paper it launched last week (to know more about that, head over to our blog from last week)!
Why is This Trending?
In a monumental decision this week from the Supreme Court, they have finally challenged this scheme, citing that it must uphold the Right To Information and urging that the anonymity be restricted to only those contributors that pay a sum below Rs. 20,000.
This protects the common people who have tried to show support to their political parties, and singles out the larger corporations that have tried to influence a political party with the size of their donations.
While this sounds like a win for democracy, what does this have to do with the markets?
Why Does This Matter?
Along with this decision to call out the Central Government and state this scheme as an “unconstitutional” one, the Supreme Court has asked SBI to do to two things:
stop issuing more bonds, effective immediately, and
release the data regarding donations made by these larger contributors (above the Rs. 20,000 mark) by the second week of March
This might not only bring to light some political affiliations by various listed players that have been making these donations (some that you may hold in your portfolios), but also brings some flux to the pre-election period, shaking the confidence of voters - all in all, affecting the overall markets in some way.
While volatility hasn’t been witnessed yet, it might be ignorant to assume that such a landmark decision that affects the country won’t trickle down to the markets in some way.
Hence, we advise caution even while buying the dips, as the weeks leading up to the election just got a whole lot more interesting!