Kotak analysts expect 'new' government to maintain investment led-reforms

While the government has already executed a bulk of required reforms for incentivising private investments, the execution will be more material, said analysts

Indian markets rebounded sharply on June 5 after a turbulent day due to concerns about political stability. With the Lok Sabha elections suggesting a coalition government, worries arose about a potential shift towards more populist policies, which could disrupt fiscal consolidation. However, Kotak analysts anticipate minimal changes in the new government's economic agenda.

"We expect the 'new' government to continue with its investment-led economic agenda, but it may tweak its priorities to support consumption and employment. We will get a better sense of the same over the next few weeks and in the FY25 final budget," they wrote in a recent note.

Analysts believe that the 'new' government will continue to focus on affordable healthcare, housing, energy transition, infrastructure development, and manufacturing.

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While the government has already executed a bulk of required reforms for incentivising private investments, the execution will be more material, said analysts.

In the past, several reforms have achieved critical mass but others are still a work in progress, they added.

They include the implementation of GST in July 2017 to reduce the fiscal deficit, progress in direct cash transfers for LPG and kerosene, consolidation of 27 PSU banks into 12 from FY17-19, amendments to the Coal Mines Act and Mines and Minerals Act for resource allocation via auctions, and the passage of four labor laws.

In the banking sector, the 'Jan Dhan Yojna' launched in August 2014 aimed at financial inclusion, resulted in over 400 million new bank accounts. Additionally, the Insolvency and Bankruptcy Code (IBC) bill was passed on May 11, 2016, to expedite large cases in NCLT.

Governance-wise too, the government implemented Undisclosed Foreign Income and Asset (Imposition of Tax) Act, 2015, which aims to reduce disclosure limit on high-value transactions.

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Going forward, the government is likely to hold these in its key economic agenda - expansion of LPG connections to poor households under 'Ujjwala Yojana', extension of support to farmers through 'PM-KISAN', provision of free ratio to 800 million citizens under 'PM-Garib Kalyan Yojana' among several others.

Against this backdrop, Kotak analysts suggested investors to focus more on  numbers and less on narratives. They expect the NDA government to broadly stick to its pre-poll manifesto that focuses primarily on infrastructure development and manufacturing.

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