The return of Narendra Modi as the Indian prime minister with such large number of seats has increased market expectations and the country would be looking forward to the first 100 days of the newly elected cabinet. The clear mandate removes the overhang of uncertainty from the market. Global volatility triggered by events will continue. Allocation to emerging markets like India will move accordingly. In India, allocation from global funds is likely to increase since investors now have political stability and predictability of economic policies, which they normally look forward to before investing with a long-term horizon.
In the near term though two major events - first, the ‘RBI Policy’ announcement this week, where after a series of poor macro-economic data, the RBI might go ahead with interest rate cut and second, the full ‘Union Budget’ would be something to watch out for.
In the full Budget, to be presented in July, the Finance Minister (FM) might announce some changes in the corporate tax front and some relief to individual tax payers. However, the focus is likely to be on measures to avoid indirect tax evasion to compensate for the revenue loss. With over 50% of India’s population depending on agriculture for livelihood, there will be measures to put more money into the hands of farmers and landless labourers. The FM has a tough job on hand – a slowing economy, liquidity squeeze, and the crisis in the Non-Banking Financial Companies (NBFC) front. Given her academic background in economics and an illustrious past record, we remain hopeful.
The BJP manifesto promised a Rs. 100 lakh crore investment in infrastructure by 2024. This would be a huge impetus to the economy and provide a major boost to sectors like infrastructure, cement, steel, and others. It will also create employment. There are serious global headwinds though – slowing global economy, intensifying trade war, tensions in West Asia that can have an impact on crude oil prices - are some of the factors that can have a bearing on the market. Poor monsoon rains could be another can be a spoiler. The agricultural sector contributes to around 18% of India’s GDP and any serious deficit in monsoon rains could be a big dampener. Although we would like to reiterate that the concerns mentioned above might have short term effects but for the longer term, we believe that the country is in strong hands and any meaningful correction in the market should be utilised to accumulate fundamentally strong stocks with a long term horizon.