Moneycontrol Pro Panorama | Business as usual for the markets

Despite the reduced volatility, concerns about market direction and the government's operational freedom persist.

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

If there's one key indicator suggesting that the worst is behind us, it's the volatility index, India VIX. As results began to emerge on the election day, the markets tumbled because the outcome did not align with the exit polls. India VIX surged to a two-year high of 31.70. However, the day after the results, when it became clear that the BJP would form a government, albeit with a coalition, volatility diminished sharply. At the time of writing, India VIX was around 19.41.

Despite the reduced volatility, concerns about market direction and the government's operational freedom persist. The pressures of coalition politics and the absence of a majority in the House may lead the government to increase spending on social programmes, especially given that the opposition's use of freebies appeared effective. This could result in a higher fiscal deficit and maintain elevated interest rates.

However, in his speech from the BJP headquarters following the election results, Prime Minister Narendra Modi focused on ambitions for defence manufacturing, accelerating progress in electronics and semiconductors, and propelling India to become the third-largest economy. This emphasis on economic growth, rather than social issues, sent a strong signal that investment in development will remain a priority.

The government's true intentions will be revealed in its first 100-day agenda and the subsequent Budget. Before the election, confident of an easy victory, Modi directed various ministries to prepare a 100-day agenda. However, the realities of coalition politics may now necessitate incorporating the views of partner parties.

Brokerage firms, particularly foreign ones, seem unfazed by the election results. Most anticipate that the government will maintain its growth trajectory and continue with its 'Make in India' initiatives. In its report on the election outcome, Morgan Stanley states that it does not foresee any slowdown in the pace of reforms. It says most of the likely reforms in the coming five years are in the arena of execution rather than law changes.

Citi's report highlights that the government has some fiscal flexibility for social spending. It points out that 0.35 percent of GDP (Rs 1.2 lakh crore) of additional fiscal space is available for FY25, even if the government aims to meet the interim budget target of fiscal deficit at 5.1 percent of GDP.

Regarding market direction, JP Morgan notes that even in 2004, when the Congress formed a government with the support of Left parties, the market rebounded within six months. As our Chart for the Day illustrates, election results are quickly priced in, and markets soon align with broader global trends.

After a brief period of volatility, the markets and the economy are back to normal operations.

Investing insights from our research team

Stocks to ride new government formation 

What are the macro implications of a weaker NDA mandate?

Why this consumption play has caught our attention now

Diamond in the Dust: Why this hospitality stock merits attention

Diamond in the Dust | Coal India: A stock that’s a catch on every drop

Diamond in the Dust: This cement major has priced in the market concerns

Diamond in the Dust: Why we see correction in GAIL as a buying window

Which stocks are better placed to play the mass consumption theme?

Make-in-India and China-plus-one stocks plunge — Time to book profits or invest more?

What else are we reading?

The new government must try to better ties with our neighbours

How to pivot trade policy to make India a global export hub

A phase of temporary uncertainty in markets to cause pain

Electric vehicles: Miles to go before reaching the EV goalpost

Is higher support for consumption demand a given?

What should be the new government’s priorities on the jobs front?

Who will prevail in ChatGPT vs the Sellside? (republished from the FT)

India Economy: The uneven policy road ahead

Andhra Pradesh and Telangana: Election results and the changing political dynamics

Karnataka: Good showing for BJP-led NDA but was this a missed opportunity for INDIA Bloc

BJP’s Southern Gamble: The highs and lows of the 2024 Lok Sabha elections

Personal Finance

How to invest after the surprising general election outcome? Here’s what DSP Mutual Fund’s Kalpen Parekh has to say

Technical Picks: Nifty, Godrej Consumer Products, and Siemens (These are published every trading day before markets open and can be read on the app).

Shishir Asthana
Moneycontrol Pro