The markets have responded with a 2,100 point jump to the Congress-led UPA's convincing verdict. The markets are sure Manmohan Singh's second term would be characterised by big bang reforms and stability in governance. It's the second chance for the Manmohan's 1991-dream team (if Montek Singh Ahluwalia joins the government). VCCircle brings to you the expectations and hopes of the top executives of financial services industry. Check out where India is headed over the next five years.
Gopal Srinivasan, Chairman, TVS Capital : The election results will have a long term secular inflow of investment as well as the domestic investment in the capital market and the private equity as an asset class. Equally I think its a time when people will seek much more PE into the growth of their businesses- the reason is not just the election outcome but the far deeper confidence in India.
It is the outsiders as well as the people of India feeling so good about the long term of India once again that is going to create a very sustained activity. Not only FII but the FDI will start which is far more important because of the longer term nature if the FDI. Secondly, we are going see a lot more people in India wanting to put money back into the equities and private equity as an asset class and real estate. I expect the government to go ahead with its measure to revive the economy as now they don't have any reason to be stopped by their allies who did not agree with them. I see a lot of regulatory reform.
Sanjay Bansal, MD, Ambit Corporate Finance : As you noticed in the markets today, the sentiment is extremely positive. The markets think it's a great event. I seen an increase in FDI inflow into the country. Once the investors have their gameplan laid out, they could come in with some serious investment into the country.
Reforms are expected across the board, including the pending bills in the parliament regarding economic and financial sector. Then there are reforms in the social sector - like education reforms, employment generation through vocational education, healthcare. Some reforms on the rural front will be to bring rural India as the driver of country's economy. The moment you have a market where you have investments taking place, growth being delivered, money will move there. Then there will be investing, dealmaking activity. I am not saying that the overseas environment has changed, it still continues to be where it is. But this may be the bright spark in the world.
Praveen Chakravarty, Chief Operating Officer, BNP Paribas India : Generally, its going to be a big positive. For the last five years, nobody doubted the intent or abilities of Dr. Manmohan Singh. The fact that he could not achieve much was solely because of the Left. This time he has no excuse. This means that expectations are very very high. The markets will run very dramatically expecting big bang, Margaret Thatcher like reforms in 70s and 80s in the UK.
After three-four months we will get a dose of reality in what is Dr Singh doing in terms of reforms. And by reforms, I don't mean simple reforms like retail and insurance sector, but hard reforms like labour reforms. I expect the market to run ahead on expectations and then after three to six months there will be a dose of reality and at the end of the day we will realise that it's not wishes of one person that matter in this country. Manmohan Singh with out the Left, that is the dream come true for most foreign investors.
Goldman Sachs: The result is a big positive for markets as it will lead to a stable government, removes months of uncertainty, and will allow the Congress the space to pursue reforms. Pension, insurance, banking reforms and disinvestment may be back on the agenda. Results may help India “decouple” further from the global economy by giving a fillip to domestic demand, and there are now upside risks to our GDP growth forecast of 5.8% for FY10.
The equity market will react positively to the result, with sectors that will benefit including cyclical sectors as the investment cycle turns, and those that play on rural demand—a continuing priority for the UPA. The positive impact on capital inflows will help buoy the INR and we reiterate our 3, 6 and 12-month USD/INR targets of 49.2, 47.3, and 46.0. The election results are almost a best case scenario for the markets.
Citi (Equity) Asia Pacific : The incumbent Congress-led UPA alliance has achieved a near majority; an almost best-case scenario, and should translate into: a) Stable Government for next five years; b) More reform-oriented agenda, with greater policy making flexibility; and c) More economic/results-oriented governance (rather than the political survival/compromise nature of recent governance). In sum, the strongest Government platform in India over the last two decades, and the opportunities could be substantial. Strong Government mandate should result in: a) Upward bias in growth expectations (maintain 5.5% FY10 expectations for now) - investment rather than consumption driven; b) Stronger currency - return of enhanced capital flows; c) Stable rate scenario, with a 50bps downward bias.
While market expectations of a macro pick up should rise – specific policy formulations, response of the domestic economy, and the global economy environment would determine the extent of change. This should be a ‘big bang’ for the market – we expect it to comfortably hold gains at the 13000-13500 index levels for now. However, the Congress still needs alliance partners for a simple majority and cushion (should not need to make major comprises), the allocation of key economic portfolio’s can influence expectations, and a budget needs to be presented before July-end.
Noble Group : Expects the Indian government to now pursue fiscal rectitude in the post-electoral budget (to be announced in sometime in June). With the consolidated budget deficit in double digits and with India on “negative” watch from the credit rating agencies, it would not out of question for the Government to raise tax rates for the rich and/or for industry. Data sources point to a welter of secondary equity issuance over the course of the summer by cash-strapped listed Indian companies.
Whilst some of these issues are genuinely required to pursue growth, many of them will be simply cash calls dressed up as “growth capital” requirements. Investors will see through such demands and as a result we expect the market to churn away from low quality stocks towards higher quality cashflows and balance sheets over the course of the summer.
Deutsche Bank : Raises huge expectations on the roadmap and velocity of economic reform – disinvestment, increasing foreign direct investments, pension and insurance sector reforms etc – which had come to a virtual standstill under the UPA’s previous administration. The verdict is one of those rare instances which justify a re-rating of the Indian equity market.
Consequently, raising the Sensex target to 14,500. see the return of a ‘feel good factor’ in India after a long gap. The return of the feel good factor coupled with our earlier assessment of an economic rebound in 2HFY2010 leads us to recommend investors to seek an aggressive portfolio with growth focused, high beta, domestic plays. Recommend investors to lighten up on the classical defensives and go underweight pharmaceuticals, telecom and consumer staples.
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