Mumbai: With the election atmosphere heating up along with preparations, Wall Street brokerage Morgan Stanley on Tuesday said that the biggest concerns for investors are a weak coalition government, which may become a possibility in 2010. And it is also very likely that the market will be very much optimistic at this particular time as it was in the past election.

“The world’s biggest democratic elections are 12 months away, and the market is likely to start pricing in the election outcome in the coming months,” a Morgan Stanley report said.

But “the market could always enter the past elections with the hope of a stronger government than the incumbent. This does not apply to the 2019 polls though where there is a possibility of a weaker government than the incumbent. Hence, it is unlikely that the market is as optimistic as it has been in the past going into the 2019 general elections,” the Morgan Stanley report issued the warning.

But the brokerage also added that “overall assessment of the current state of indicators favours the incumbent. Growth is looking up, inflation is stable, farmers’ sentiment is likely improving, transfers are rising, and jobs are coming back. However, the indicators may shift in the coming months-and together with them, the election outcome.”

Morgan Stanley says that the usual approach of the market during the run-up to the polls is one of optimism, a great change from the past is that none of the elections since the mid-90 s has started with a majority government in the run-up to the polls.

The report also gives details into economic indicators grouped in five categories — growth, inflation, farmer sentiment, direct benefit transfers — which if kept in good shape can result in the re-election of the incumbent government.

The brokerage expresses its feeling that these economic indicators ignore the social and political debates which occupy the centre stage in any election and to that extent; they are in fact a simplification of estimating poll outcomes.

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