The market is looking at the second term of Modi Sarkar to build on the foundation laid in the last term
The mutual fund industry has cheered the 2019 General Election verdict as it portends a stable government for the next five years. As per initial results, after building on the leads, the BJP-led NDA is on track to return with a majority.
Industry experts said the market was looking for stability, continuity and strong leadership rather than a fractured mandate.
Nilesh Shah, Managing Director and Chief Executive Officer, Kotak Mutual Fund, said, "Removal of political uncertainty is always welcome from a market point of view. Current mandate shows the maturity of voters in choosing a stable government."
He said the market is looking at the second term of the Modi government to build on the foundation laid in the last term. “Market believes the stage is set for accelerating growth to a higher level by tackling certain challenges like revival of investment and support consumption growth. Changing the orbit of Indian GDP growth from current seven percent to a higher level is what markets are expecting from the government's second term,” he added.
Post the initial euphoria, asset managers said the focus will shift to hardcore economic decisions and the manner in which slowdown and economy are handled in Modi 2.0 regime.
Reeling under consumption slowdown amid a liquidity crisis in NBFC sector and with limited fiscal space, the Modi government’s second term in office is likely to be more challenging than the first.
On the positive front, with Modi coming back at the centre, fund managers expect a pick-up in the capex cycle and earnings.
“In the medium-term, we expect the capex-cycle to start and earnings pick-up to accelerate. A clear mandate should only help to accelerate the process provided appropriate measures are undertaken,” said Prasanna Pathak Fund Manager-Equity- Taurus Mutual Fund.
Along with this, fund managers expect inflation framework (low food prices and positive real rates), fiscal consolidation, infrastructure spending, FDI focus and strong foreign policies to continue with NDA government reassuming the position at the helm of the country.Key priorities
Fund managers expect the Modi-led government to take immediate measures to revive consumption, address financial sector dislocation by recapitalising state-run banks and boost manufacturing sector to ensure job creation.
Along with controlling fiscal deficit, fund managers said there is a need for resumption in retail flows in the market. “Fiscal deficit needs to be controlled and financial discipline instilled without falling prey to populist measures, said Jimmy Patel, Chief Executive Officer, Quantum Mutual Fund.
Lack of adequate liquidity and high real interest rates is stifling aggregate demand. Sectors like NBFCs, real estate and automobiles are precariously perched and unless rescued through immediate intervention can further hurtle the economy on a downswing.
Manish Sonthalia, Head-Equities PMS at Motilal Oswal AMC, believes the government first needs to fix NBFC liquidity and solvency issues and speed up policy reforms.
They see a need for policies to encourage FDI flows to invest in long-gestation infrastructure projects, takeover of ailing industries and recapitalisation of financial firms.
Some of the issues equity markets will focus on are consolidation of PSBs, aggressive divestment of PSUs especially basket cases like Air India, BSNL-MTNL, increased private sector participation in sectors such as defence and railways, infusion of more transparency in managing behemoths like Food Corporation of India and LIC and continuation of large investments in infrastructure.Sectors
Taurus Mutual Fund is positive on the corporate banking, capital goods and cement sector.
Karthikraj Lakshmanan, Senior Fund Manager – Equities, BNP Paribas Mutual Fund, is optimistic on financials and select pockets of consumption.
BNP Paribas Mutual Fund is also positive on the insurance sector as it has been delivering decent growth and sees an opportunity for additional market penetration in the term insurance business. "Reasonable valuations of insurance companies from the sector makes it an attractive investment," he said.
Besides insurance, companies from organised retail, paints, packaged foods, movie exhibition (multiplex) and aviation space continue to clock strong volume growth despite overall consumption slowdown.
Fund manager feel the consumption sector is expensive, however, higher and sustainable growth visibility provides an opportunity to identify and invest in a good company. Also, there are select industrial companies with a healthy balance sheet and execution/ technological capabilities that could benefit from a gradual pick up in India’s private sector capex.Key risks
Fund managers cite the NBFC crisis as one of the biggest domestic risk that the Finance Minister will have to address.
Internationally, heightened tensions between US and Iran is the biggest risk.
Mark Mobius, Founding Partner of Mobius Capital Partners, said in an interview to CNBC-TV18 that the key risk factor for Indian market would be chiefly global. "If there is a real downturn in global environment, it would impact India. Oil remains a very important factor. However, with the US Dollar index going up, more Americans will look at overseas investments and if there is less investment in China then India could be a beneficiary of that."
However, he feesl the outlook even in a difficult environment is good for India, provided the reforms process continue.Follow @HimadriBuchThe Great Diwali Discount!
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