Nifty spurs to all time highMar 15, 2017(09:36)
Dalal Street was reeling under the stellar show by BJP in the state elections with the Nifty50 hitting a record high of 9,122.75, breaking its March 2015 record of 9,119 even with a note of uncertainty of a rate hike by the US Federal Reserve in the background. In Uttar Pradesh, the BJP won 312 seats out of 403. There is an all-pervasive belief that the UP win has set the stage for Prime Minister Modi for 2019 general elections. The market has opened with exultant buying sentiment.
Furthermore, this state election win in the backdrop of demonetization is an amazing feat, as demonetization was the biggest risk Mr.Narendra Modi faced. Hopefully after the currency injection in January, talks over demonetization will now come to a cease. The longer term impact of demonetization could be dependent on the data coming in the near future. The UP win has certainly induced a lot of positive sentiment for foreign investors and foreign banks.
The timely implementation of GST from July 1, 2017 has been the biggest hope riding positive with a now stronger BJP because it will help the economy recover at a steady pace. Earnings are expected to make a comeback in next few quarters. The BJP vehement victory in the politically-crucial state of UP would fortify the Prime Minister and aggressively accelerate key structural economic reforms that have been limping India growth. Mr Modi has managed a juste milieu by highlighting on economic reforms with equal-for-all principle as its nexus. With GDP implementation, various studies suggest that GDP growth may add 1-2% growth rate, knocking on the doors of double-digit GDP growth.
Limelight on Electoral Promises
Currently in power at the Centre, with four out of five states in the bag, the Bharatiya Janata Party (BJP) will now rule in 13 states in the country – the highest number in its history.
This should make way for important reforms and it would facilitate decisions on strategic policies and allow swift implementation of economic policies.
Among the BJP various poll promises to the Uttar Pradesh electorate, the market will keenly watch for any developments on the following three:
- Waiver of all small and marginal farmer loans.
- Interest-free agriculture loans to all small and marginal farmers.
- Payment of sugarcane farmers’ dues by banks and sugar mills
BJP leaders say that the focus will now be on compliance and improving the ease of doing business. Also, a far more aggressive campaign against illegal wealth is expected with focus on the implementation of the new benami law in property transactions.
Going ahead, the rupee is set for further gains after hitting around a four-month high of 66.56 per dollar on Friday, as foreign investors have started returning to emerging markets including India since February. The pound retreated almost 0.1 per cent to $1.2208 after both houses backed the so-called Brexit bill, opening the door for May to start the clock on the required two-year negotiation period by the end of this month.
Further, fund inflows via domestic institutional investors and foreign investors into the domestic equities have shown no signs of tapering off. While domestic institutional investors infused funds to the tune of over Rs 400 Billion in the last six months, FIIs have been net buyers of local shares worth Rs 71.45 Billion returning to the country having bought a net $1.5 billion in equities and $887.3 million in debt in February, following four consecutive months of net sales. They have remained net buyers in March. But expensive valuations and caution due to an anticipated rate hike by the US Federal Reserve this week could temper gains.
Bank stocks, in particular, will remain in focus as the promise of farm loan waivers in UP could find resonance in other BJP-ruled states.
Given that, there are several positives for the Indian economy compared with its peers such as healthy fiscal deficit situation, high foreign direct investment (FDI) inflows, stable exchange rate and a majority-government at the centre. These are supporting India to reach higher growth trajectory.
The PM is on a war against trust deficit. Modi is firmly in the driver’s seat in passing tough reforms. If he chooses to implement the structural reforms that India badly needs to increase its competitiveness and create the jobs, he needs to take all these factors into account. Now, the ruling party at center has enough state governments under its banner, to cut ice in India’s federal structure as per will.