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Elections 2019: What market analysts and investors expect from the new govt
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Prime Minister Narendra Modi-led National Democratic Alliance government will likely focus on accelerating economic growth, easing the liquidity squeeze and boosting consumption early in its second term, but many analysts and market observers remain skeptical of dramatic results anytime soon.

The NDA has either won or is leading in more than 340 constituencies, with Modi’s Bharatiya Janata Party alone likely to win nearly 300 seats in the elections for 542 Lok Sabha seats. The opposition Congress-led coalition is likely to win less than 100 seats.

Analysts and market observers say that, with the election results out now, the focus will shift back to economic growth, monetary policy and corporate earnings, which will drive fund flows for the Indian financial markets.

Here’s what the Street has to say:

Samir Arora, founder and fund manager, Helios Capital

The government had similar numbers or higher numbers (in 2014)… I am not in the camp which says that this government will suddenly do big changes because they could have done those changes six months ago or one year ago and nobody would have questioned them.

The outcome of 2019 elections has removed a big uncertainty. Therefore, in the eyes of foreign investors, if that was one obstacle in committing larger funds or immediate funds, there can be a little bit of more clarity on financial matters such as fiscal discipline and interest rate cuts.

I do not expect a big pop from here. It is just like a normal good market where most of the time, you do not expect any big gains but rather reasonable gains for reasonable effort. I will not expect dramatic changes.

Also, the government needs to recognise and accept the problem faced by non-banking financial companies (NBFCs).

Ramesh Damani, ace stock market investor

We do hope, over the next six months, the stock market rally broadens and the midcaps perform well.

From the economy’s point of view, there is a credit squeeze as well. There is a strong chance that interest rates may be lowered when the Reserve Bank of India (RBI) meets next and liquidity is increased. And hopefully, the earnings of smaller companies that have been starved of capital so far will start reviving.

Rusmik Oza, head of fundamental research, Kotak Securities

We see limited upside potential in the Nifty in the near future. The Nifty, at 12,000, trades around 19 times one-year forward earnings. Part of the passive money that has come by way of exchange-traded funds in the last three months could move out if the Nifty goes above 12,000.

We see more value and upside in the mid- and small-cap segments. We expect local investors to take comfort in the broader market with a longer two-three year horizon and inflows could resume.

Based on our reading of the BJP’s manifesto and interim budget, sectors like capital goods, construction, building materials, banks, power equipment and housing finance companies could benefit the most in the next one year.

Consumption stocks could take a back seat because of the slowdown in demand and rich valuations.

Prachi Mishra, MD and chief India economist, Goldman Sachs Group Inc

We see potential structural reforms focusing on four key themes: Land – transparent auctions, and digitisation of records; Labour – creating an enabling regulatory environment; Privatisation – in areas such as agriculture and banking; and export promotion.

We do not forecast more significant monetary easing post-elections, but we do see substantial liquidity injections to take place in the near term. Moreover, we do not expect further loosening, nor serious consolidation of fiscal policy.

DK Srivastava, chief policy advisor at EY India

The immediate task before the new government is to stimulate demand in the economy and uplift investment sentiment.

On the monetary side, two successive policy rate reductions of 25 basis points each have not yielded tangible results as yet. One more repo rate reduction of 25 basis points may be considered. This should be supplemented by a fiscal stimulus.

The new government should frontload approved expenditures of the interim budget immediately, release the balance from the Kisan Samman Nidhi as soon as possible and come up with a clear fiscal and growth strategy in the full year budget of 2019-20.

B Gopkumar, ED and CEO, Reliance Securities

Markets were looking for stability, continuity and strong leadership rather than a fractured mandate. We believe India allocation from global funds will increase and more ETF flows are likely over the short term that could drive the markets even higher.

Rajesh Cheruvu, CIO, WGC Wealth

There is now hope that the new government will have the ability to pursue the economic reforms initiated in the past five years. Such a strong mandate should ensure continuity of policy, undertake further structural reforms and likely boost business and consumer sentiment. 

This may lead to a medium term up-move in the equity markets. But, fundamentally, stock prices should respond to valuation multiples and earnings growth. In the Indian context, the latter has been missing for many years.

Tanvee Gupta Jain, economist, UBS Securities India

Modi’s win was priced in. We had met over 50 investors in the US and Europe over the past month. The big question was if the government maintains power, is it willing to undertake big-ticket reform (land, labour, capital) critical for India to move to a sustainable growth path in the medium term?

In the near term, simplifying of the Goods and Services Tax (GST), support for the rural economy (assured income support of Rs 6,000 per year per farmer, affordable housing and health schemes), boosting public infrastructure capital expenditure and strengthening the banking system are likely to be key priorities.

However, the economy is experiencing a cyclical growth slowdown and momentum should remain sluggish until the first half of this fiscal year. We believe headwinds such as tighter financing conditions (led by the NBFC sector), lower fiscal headroom and sluggish disposable income have weighed on consumption growth.

Mahesh Nandurkar, India strategist, CLSA India

A strong mandate for Modi means the lurking fear of more dosages of populist cash transfers and loan waivers probably declines. This should be good news for government securities.

The same government continuing for another five years implies predictability in policies and key decision makers, including top bureaucrats, remaining the same.

Our recent meetings with top bureaucrats in Delhi suggest there seems to be a reasonable appreciation of the fact the investment slowdown over the past seven years has been largely caused by a household investment slowdown and that the government might shift to pro-growth policies.

However, the downside risk of a big win is that an economic revival may not remain an urgent priority.

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