MUMBAI: Sensex and Nifty have voted for smart gains, among other things, what they have been looking for — continuity of regime in terms of the unfinished reforms agenda and stability that would give the government the ability to see them through during NDA 2.0. Domestic as well as global institutional researchers are looking at the record of NDA 1.0 and promises in the election manifesto to arrive at a possible post-election strategy.
The immediate concerns the markets expect the government to address are liquidity, fall in interest rates, and social sector and infrastructure spending. The markets would also expect the individual stocks that would come into focus to stay around the themes of infrastructure and social sector development, rather than a focus on Nifty or Sensex stocks that may not have much room to grow from where they are at present.
“We believe Modi 2.0 has given the ruling dispensation more firepower to take hard decisions and push for reforms. We expect sustained thrust on social schemes aimed at removing disparity and look for more inclusive growth… Agriculture is likely to see sustained investments and (also) a serious attempt to increase rural livelihood,” said broking firm Prabhudas Lilladher.
Focus on agriculture, social sector spending, healthcare, SME and MSMEs, infrastructure spending and the continuation of ‘Make in India’ efforts are keenly watched. Going by the election manifesto, the theme that the NDA 2.0 would focus on foremost seems to be the social sector spend.
The disruptive macro reforms of NDA 1.0 impacted the economic growth and, in turn, corporate earnings dwindled. Consumption, which was the backbone of economic growth and corporate earnings, slowed down and private investment fell. Motilal Oswal, in its report, points out how India’s corporate profit to GDP ratio moderated from 5.5 per cent in 2008 to 2.8 per cent in 2018.
“However, now the corporate earnings cycle appears to be bottoming out, and with a revival in credit growth and asset quality of corporate banks, FY20 looks poised for the first year of healthy 15%+ earnings growth,” the report said.
The market data paints a better picture though, as BSE Sensex jumped 61 per cent and market capitalisation rose from Rs 75 lakh crore to Rs 150 lakh crore during NDA 1.0.
If the disruptive reforms were not short-term positive for economy, it was good in terms of liquidity in the markets, as well as in terms of savings finding their way to financial instruments through mutual funds and insurance.
“I am expecting increased flow of money from foreign and domestic investors when aspirations meet needs and implementation happens. FDI money is expected to surge to meet the capital demands of $5 trillion in the next 5-7 years and portfolio money may reach higher figures in excess of $100 billion per year,” said Deven Choksey, promoter and founder, KRChoksey Investment Managers.