Modi's retention of old guard eases market fiscal concerns

Indian markets opened higher but quickly reversed gains, trading slightly lower. At 10am, Sensex was down 0.01%, with Nifty at 23270 points, unchanged from yesterday's close.

India's Prime Minister, Narendra Modi, has retained key ministers in their roles, ensuring policy consistency in the new coalition government overseeing India's fast-growing economy. Nirmala Sitharaman remains Finance Minister, Amit Shah remains Home Affairs Minister, Subrahmanyam Jaishankar as External Affairs Minister, Piyush Goyal as Commerce Minister, and Nitin Gadkari as Transport Minister.

Economists noted that reappointing key ministers alleviates market concerns about the new coalition government, especially regarding fiscal policy.

Indian markets opened higher but quickly reversed gains, trading slightly lower. At 10 am, the Sensex was down 0.01 percent, with the Nifty at 23,270 points, unchanged from yesterday's close.

Here are the key views from brokerages

Goldman Sachs Group Inc.

-Modi’s new coalition government kept leadership positions unchanged in most of the key ministries, which bodes well for continuity of reforms

-“We expect the new government to stick to the fiscal consolidation path with a continued thrust on infrastructure creation through more rail network, amidst a slight tilt towards more rural spending,” Goldman Sachs economists including Santanu Sengupta wrote in a note.

-Modi’s party kept 25 out of 30 cabinet appointments while leaving five cabinet seats for coalition partners, Goldman said.

Nomura Holdings Inc.

-“Investors were very fearful of the compromises the BJP would have to make” after being forced to form a coalition government,” Sonal Varma, an economist at Nomura Holdings said.

-With Sitharaman’s reappointment, the focus on infra and continued fiscal consolidation should also continue.

-While Andhra Pradesh and Bihar may get financial support, this will probably be done “without compromising on fiscal consolidation”, Varma said.

DRChoksey FinServ

-Nirmala Sitharaman’s reappointment as India’s Finance Minister in the new coalition government is “definitely a wise step” for keeping the focus on infrastructure development and exports, says Deven Choksey, Managing Director at DRChoksey FinServ Pvt.

-“She has done a good job of focusing on priorities and has the clarity on what needs to be done,” he said.

Target Investing

-With fiscal discipline a focus for the next two budgets, it was important that there was continuity in the Finance Ministry, said Sameer Kalra, founder at Target Investing. “Markets would react with some level of positivity on it,” he said.

-“Given rating agencies have turned positive in their outlook, there is a possibility of a rating change in next 24 months”.

Barclays PLC

-“With most ministries, including the top four, unchanged, we expect policy continuity from the new government,” Shreya Sodhani, Vice President for global research, wrote in a note.

-Sodhani said that investor focus will now move to the budget in July where she sees the fiscal deficit target for the financial year ending March retained at 5.1 percent.

(Bloomberg contributed this story)