Analysts’ opinion: Election results 2019

The National Democratic Alliance is on its way to a thumping victory as it leads in close to 350 Lok Sabha seats, paving the way for the incumbent Narendra Modi to become Prime Minister for a second time.

Here are expert opinions on the what the focus of the new government should be:

Ankur Pahwa, partner and national leader, e-commerce and consumer Internet, EY India

E-commerce

As the new government steps-in, among key policy interventions, the e-commerce policy needs some urgent attention as it can propel investments, job and wealth creation to boost overall economic growth.  The colour of money differentiation needs a re-examination, wherein more emphasis should be given in governing the sector than focusing on foreign vs domestic capital segregation. The need of the hour is an equalised policy treatment for both foreign and domestically funded e-commerce companies, consistency in the approach governing both online and offline retail players, and a well-rounded data policy in-line with global standards that takes into account consent, privacy, protection, ownership, access and usage of data for both individuals and companies. The e-commerce policy also need to take into account the view of impacted stakeholders and provide sufficient runway for implementation. Furthermore, incentives to companies exploring ‘deep-tech’ such as AI, ML, IoT, etc., will bring in more efficiencies in the system and ultimately improving customer experiences.”

Start-ups:

India remains the world’s second largest start-up nation and clearly the government has had the right intent to boost start-ups in the country to foster innovation and job creation, while protecting both investors and entrepreneurs. While measures have been taken to provide relaxation from Angel Tax, there are still some unfulfilled expectations linked to its simplification when looked at from a long-term lens. More attention is needed to protect entrepreneurs; at the same time enable promoters and investors to raise capital through differential voting rights. While the government has made considerable and commendable headway in ease of doing business, further steps linked to easing of norms will fuel the start-up ecosystem.

Abneesh Roy, senior vice president, Edelweiss Securities

Strong mandate for new government will be good for FMCG and discretionary* sector as (1) *Expect strong stimulus for rural areas* which was on hold due to model code for conduct, this will revive consumption. (2) overall *GDP growth rate* likely to accelerate due to strong policy formulation, reforms. (3) *improvement in liquidity* will revive spends by wholesale and distributors. *Top picks- HUL, Nestle, Britannia, Marico. From a longer term perspective of two years, Dabur and GCPL also look good.*

Amnish Aggarwal, head, Research, Prabhudas Lilladher

"Election Results are positive for the market as it gives a stable Govt for the next 5 years. However post initial euphoria, focus would shift to hardcore economic decisions and the manner in which slowdown and economy is handled in Modi2.0. we are positive on long term for the markets, our NIFTY target in a bullish scenario is 13000, for which growth rates need to catch up."

Ajay Bodke  CEO, Prabhudas Lilladher

A Herculean challenge awaits the newly elected Modi government on the economic front. Problems galore & addressing them on a war footing to rev-up the fast slowing economic engine with faltering consumption, moribund private sector investments & anemic exports should be the first priority.

With limited fiscal space & build-up of massive off balance sheet liabilities, a focused effort to address strong & sustained revenue mobilization is necessary.

Necessity to expend political capital very early-on to tackle factor reforms like land & labour to help generate employment opportunities for tens of millions of semi-skilled & unskilled workers is called for.

Lack of adequate liquidity & high real interest rates are stifling aggregate demand. Sectors like NBFCs, real estate & automobiles are precariously perched & unless rescued through immediate intervention can further hurtle the economy on a downswing.

Policies to encourage FDI flows to invest in long-gestation infrastructure projects, take over ailing industries & recapitalize financial firms need to be put in place.

Some of the issues equity markets will focus on are consolidation of PSBs, aggressive divestment of PSUs especially basket cases like Air India, BSNL-MTNL, increased private sector participation in sectors such as defence & railways, infusion of more transparency in managing behemoths like FCI & LIC and continuation of large investments in infrastructure.

Ashish Shanker, head of Investment Advisory, Motilal Oswal Private Wealth Management

The current government is looking set to win another historic mandate for the coming five years. Whilst its good news for investors from a stability point of view there is a clear task cut out for this govt. Come clear reforms that the markets desires are as follows :

• Ease liquidity and bring down lending rates to kick start demand
• Tackle liquidity challenges for the NBFC sector to avoid any systemic challenges in the financial sector
• Clear bottle necks especially for manufacturing sector so it encourages foreign direct investments into India
• Focus on infrastructure development, execute the current policies more efficiently

Garima Kapoor, economist, Elara Capital

Reeling under consumption slowdown amid liquidity crisis in NBFC sector and lower terms of trade in the agriculture sector, optimism around India’s economic growth has come to a grinding halt. With limited fiscal space amid compelling priorities and electoral promises, the Modi government’s second term in office is likely to be more challenging than the first.

Unlike the first five years, the solution to the problems is complex and requires a radical shift in the economic policy. If the first five years of the government were dominated by housing, roads and toilets, the next five would have to be dominated by investment, jobs and nursing of the dislocated financial sector. Among immediate priorities we expect the Modi led government to take measures to revive consumption, address financial sector dislocation by recapitalizing PSU banks, boost manufacturing sector to ensure job creation and solve the conundrum of skill shortage in the country to ensure employability.

Likewise on the rural front, having created a good platform for rural schemes in last five years, during his second term Modi led NDA is expected to focus on reviving terms of trade in agriculture. We expect the government under Modi to strengthen e-NAM, enhance micro-irrigation facilities, increase credit to agriculture and boost farm prices through effective implementation of schemes such as PM-AASHA.

Likewise, by 2022 NDA is expected to gain majority in Rajya Sabha. This will enable them to pursue difficult legislations like Triple Talaq and electoral reforms which have been a part of its social agenda.

With the ruling NDA dispensation set for another five year term, the political risk has reduced and the market expectation for policy continuity has been addressed. We believe, the election related exuberance could propel the markets in the near term and pose an upside risk to our CY’19 Nifty target of 12,000. However, the current level of corporate fundamentals, trade wars and the progress of monsoon will weigh on the markets.

From a portfolio positioning perspective, we recommend investment over consumption. In terms of asset class, we expect mid and small to outperform large cap.