New Government, New Hopes and New Reforms – MODI 2.0

A major event for Indian Market, i.e. is General Election 2019 is done and NDA won the election with huge majority and Modi 2.0 era is going to begun from now. As per our research report dated Nov 2018, we were hoping for major rally before 2019 election and we are happy to update that from last October to till election result date, Nifty is up by 20% by marking all time high of 12,040. On 30th May, Modi has taken charge as Prime Mister of India for the second term along with major portfolio’s like Home Ministry – Amit Sha, Defense Ministry – Rajanath Singh, Finance Ministry – Nirmala Sitharaman and Commerce & Industry ministry – Piyush Goyal.

As new government formation is a result of huge mandate, expectation of people from new government is also very high. A road map is for new government is not so easy as many challenges are waiting for new reforms. Some of the major issues are NBFC liquidity crisis, ILFS bond issues, PSU bank reforms, slowing growth etc. along with global issues like slowing global growth, China-US trade war escalation and Iran-US escalating tension. These all are the factors which will impact your investments and savings directly or in-directly depending on your portfolio composition.

The question on every investor’s mind now is: Where is the market heading? These questions do not have a definite answer, but we will try to point out a few things which will determine the direction of the market.

  1. The new Government will present the full budget which will set the roadmap for next 5 years
  2. RBI may address liquidity concerns with a 25-basis point cut in the interest rate which will also impact the borrowing rate of the corporates
  3. Though the market is overpriced (marked by the high PE ratios), P/E may still expand if Government announcements are favorable
  4. On 24th May, Mid-cap and Small-cap indices made the golden cross-over suggesting the next big move may belong to these indices.

Global concern area for the market is the US-China trade war which may negatively impact the investor’s sentiments across the world. Escalations will create a panic in the global equity markets which will have an impact on the Indian markets as well. Having said that, India could be a major beneficiary in this trade war as both US and China will look at Indian markets to counter each other. Geo-political concerns with respect to US – Iran conflict may cause a rise in the crude oil prices which will adversely impact India. There will be a lot more clarity on the direction once the budget is presented by the new government. Sticking to high quality funds and stocks will surely reward the investors over long term.