Prime Minister Narendra Modi is the first Non-Congress Prime Minister in India to return to power after a full five-year term. The National Democratic Alliance (NDA) led by the Bharatiya Janata Party (BJP) will be returning to power by winning 300 plus seats out of the 542 seats that went to the polls.
India’s benchmark indices opened at record highs. The Sensex hit the historic milestone today by crossing 40,000 points and the NSE Nifty crossing 12,000 points as Prime Minister Narendra Modi is set for a second term with a comfortable majority. However, Sensex closed at 38,811 and Nifty closed at 11,657, due to profit booking and external factors such as US-China trade war.
All eyes will now be on the interim budget. The BJP is committed to make India a $5 Trillion Economy by 2025 and a $10 Trillion Economy by 2032. While the BJP Manifesto has decided to increase the allocation of capital investment in Infrastructure and for medium and small scale enterprises, it will be interesting to see how the government maneuvers a tight financing condition (Especially in NBFC Sector) and with lower fiscal headroom. But a stable and a pro-development perceived government will definitely boost investor sentiments and increase Foreign Institutional Investors (FII) participation.
For our investors, we recommend that they stick to their target asset allocation with investments in equity and debt instruments, as it is important to remember that 2019 is not similar to 2014, where the equity markets were not as overvalued as they are now. The concerns with regards to US-China Trade War and Rebalancing of MSCI Indexes could put Indian Markets on a downward trend for the next 6 months and the disturbance in sectors like Real Estate, Metals may also have a negative impact on the Indian Equity Market.
Looking forward, when the above concerns subside, and market valuations like Price to Earnings Ratio (P/E Ratio) become attractive with an increase in corporate earnings will provide opportunities in the Equity Space.
While we are keeping a close watch on global developments, a strong government at the centre is a definite boost for our economy going forward. We will be coming up with more detailed sectoral updates once the noise around the elections has subsided. Till then stay tuned!