Govt continuity spurs markets, but inflation, growth will be key

Stability, probably the most comforting factor for stock markets, spurred the indices to a new peak.
Stability, probably the most comforting factor for stock markets, spurred the indices to a new peak.
Stability, probably the most comforting factor for stock markets, spurred the indices to a new peak.File photo

After riding a roller-coaster for a week, the Indian stock market seems to have found a firm footing. When the BJP’s campaign ended up way below the much-touted ‘400 paar’ target, forcing the party to quickly sew up a coalition government, the stock indices went on a downward spiral. The grandstanding by top ministers that the markets would soar on June 4 ended with a whimper. The opposition parties smelled a scam and blamed the government for pumping up the market and leaving investors in a lurch. Amid reports of coalition partners vying for plum portfolios, the BJP steadfastly held on to the continuity mantra. As the party retained key portfolios such as finance, commerce and defence, and handed their reins to the same old faces, the markets put aside the worries typically linked to coalition governments.

Stability, probably the most comforting factor for stock markets, spurred the indices to a new peak. Public sector, defence and rail stocks, which have been performing much better than the indices over the last couple of years, responded positively in the few trading sessions post-government formation as brokerages gave them a thumbs-up. Stock analysts are exuding confidence that the ministers will hit the ground running without disturbing the status quo, and continue with their reform agenda without any tinkering. Many believe that the first few months of the Modi 3.0 government will be crucial for several sectors, as they are likely to see a reiteration of the existing policy framework as well as new proposals. Hopefully, increased capital allocation from the government will help sectors such as manufacturing, power, infrastructure, rail and capital goods.

The market is now eagerly awaiting the 100-day action plan. The government has been drawing up an agenda in line with proposals announced ahead of the elections as well as the Viksit Bharat 2047 goals. The market is waiting to analyse how the agenda would impact a number of sectors. The stock indices had rallied 9.8 percent in the first 100 days of the 2014 government and declined 6.7 percent during the same period of 2019. Whatever be the change this time, a gradual reduction in retail inflation and faster growth will remain the two most important triggers for the markets in the longer run.

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