With about 40% of UP’s voters casting their votes in favour of the BJP, it looks certain that “demonetisation has gone down quite well with the street who feel that greater formalisation of the economy would change the fate of the poor by giving them even greater opportunities to prosper,” says Deepak Kapoor, a Delhi-based stock analyst. Not only the poor but the investor class also feels that demonetisation and the GST are two major triggers which would revise our GDP numbers up by over 2 percentage points, adds Kapoor.
Markets seemed to have known the verdict of the elections — conducted in five states of the country — much in advance, but the proportion of the BJP’s victory, especially in UP, has raised the bar for Prime Minister Modi, caution market analysts.
Markets are expected to cheer the BJP’s crucial victory in UP and Uttarakhand when it opens next week. After already gaining about 12% since the demonetisation was announced, the Sensex might rally and “may even make a new high”, says Basant Maheshwari of Kolkata-based Equity Desk, “ but with the dim prospects of Indian IT and pharma sectors, it is the individual stocks or sectors which might shine better than the broader index (Sensex).”
The expected rally, however, may not sustain, mainly due to many global headwinds the most important among which is the result of the upcoming elections in France. Much of the other headwinds like the surety of the Fed hiking interest rates etc., are already factored in by the markets.
The domestic landscape is, however, brimming with opportunities. “India is witnessing a series of resets, be it in growth expectations, ecosystems or industries, and such structural changes will have more long-term benefits than short-term,” says Ashu Suyash, Managing Director & CEO, CRISIL Ltd. He explains that the ongoing resets would lead to consolidation in three ways: in consumption, after the demonetisation shock; in infrastructure, through deployment of innovative financing; and, lastly (and the most significant) in market shares because capacities will change hands for various reasons such as intense competition, GST, policy action, formalisation of the economy, and stressed assets resolution.
There is indeed a general unanimity among stakeholders that the BJP’s economic policies are indeed going to yield long term economic benefits. Kapoor feels that the demonetisation is comparable to events like nationalisation of banks in 1969 or the 1991 reforms that turned the prospects of Indian economy. “Modi’s demonetisation drive would be subject of study and would soon be quoted elsewhere in the globe,” feels Kapoor.