History was written yet again in the year 2017 when the ruling Bharatiya Janata Party (BJP) clinched a majority in a close contest between the ruling party and Rahul Gandhi-led opposition, Congress.
The final tally left many unanswered questions for the ruling BJP party and some cheer for Congress which performed better than consensus estimates.
Although, the final results of the state elections in Gujarat and Himachal Pradesh indicate the BJP is in driving seat in both states and with a higher vote share, with a lower seat tally in Gujarat -- 99/182 seats, down from 115 recorded in 2012.
Both results are lower than the average of opinion and exit polls which led to wild swings in the market on Monday when the results started coming out. The road ahead for BJP up till elections looks tough and now they have to maintain a fine balance between the reform processes and adhere to fiscal consolidation path.
The below average performance of BJP could force the government to come up with the populist measure in the upcoming budget which could put further strain on the fiscal deficit target set by the government, a number closely watched by investor community as well as global rating agencies.
The government aims to meet the fiscal deficit target of 3.2 percent of GDP for FY18, but there could be some relaxation in the consolidation roadmap for FY19, fear experts.
The Gujarat elections were closely watched, and viewed by market participants across the globe as a referendum on Prime Minister Modi’s performance and popularity in the run-up to the next general election (scheduled for April/May 2019).
“Given the election, calendar remains heavy in 2018, we expect some shades of populism to emerge next year, with a focus on policies with both economic and political benefits. We do not expect the election results to materially impact the BJP’s seat tally in the upper house,” global research house, Nomura said in a report.
“Even though the BJP is on track to form a government in Gujarat and HP, we still expect some shades of populism to emerge. We expect an increased focus on rural development (higher minimum support prices and rural infrastructure spending), as well as a larger budget allocation for infrastructure, women and social development schemes,” said the report.
The election calendar remains very heavy in 2018, as there are eight other state elections scheduled, which include important ones like Karnataka, Chhattisgarh, Madhya Pradesh and Rajasthan.
“Markets will take the win affirmatively as a reposing of faith and continuity of policies at the centre. Given that the mandate is slightly lower than that in 2012, it would be a signal for the government at centre to speed up on the unfinished agenda of creating jobs, empowerment of women, improvement in earnings and living condition of the lower class and rural population, creation of better infrastructure, livable spaces for the urban folks etc.,” Arun Thukral, MD & CEO, Axis Securities told Moneycontrol.
“Now, the markets will focus on the forthcoming events viz., quarterly earnings starting Jan.’18 and Budget 2018 to see how the corporate earnings fare in Q3 and the outlook for the next financial year respectively,” he said.
Indian market rose by about 26 percent so far in the year 2017 fuelled by strong domestic liquidity which pushed valuations higher without any meaningful change in fundamentals.
The overall market trend is still on the higher side and investors would look for some positive news from December quarter earnings as well as upcoming Budget. Valuations of Nifty, PE, is already above 26.4 levels which is historically as same as levels we have witnessed in 2008 and 2000.
“The bull run in the stock markets may not be affected much as the Gujarat elections results have been declared. Less uncertainty provides some relief. Going ahead, the stock markets will eye the quarter earnings season that begins in early January,” Hemang Jani, Head - Advisory, Sharekhan told Moneycontrol.
“A rise in crude oil prices and rate hikes by global central banks, especially the US Federal Reserve may affect markets. All eyes will also be on the Union budget
in February. It remains to be seen whether the government is able to maintain its fiscal deficit targets or not,” he said.