If the stock market is any barometer to gauge the mood of the country, it was festive on election result day. The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) was handed a clear mandate for another term of five years and the Sensex touched the 40,000 mark for the first time, though it fell later to close at 38,811. It’s not just the markets, investors too have given the clear mandate a thumping round of applause. Many feel that BJP coming back in the driver seat will mean continuity of reforms and stability, which will positively impact the economy and investors will ultimately reap the benefits.
Mint spoke to a cross-section of people, spanning professionals, corporate employees, market experts and millennials to understand what the election verdict means for them. The responses came with a thumbs-up for the government, but not without some concerns surrounding jobs and growth. Here is what new India said about the second term for the BJP government.
People are hopeful that their investments will grow in the future. “With a stable government in place, new policies will also come in, which will further boost the industries and economy and, in turn, improve investments," said 29-year-old Gautam Nimesh, a software developer with SAP Labs in Bengaluru.
Alpana Singh, 40, a Lucknow-based mutual fund distributor and financial adviser, who has 95% of her assets in equity, also feels her investments will get a boost because of a stable government in place. “The new government will certainly look at resolving key issues like ease of doing business, and they are also looking to grow and bring inflation down. I am an aggressive investor, so the sentiment right now is extremely positive and I see a stable government coming in as a very positive thing," she added.
In the past year, most institutional investors, private equity firms and foreign investors held on to their investments, said Rohit Shah, founder and chief executive officer, GettingYouRich, a financial planning firm. They will now be able to go ahead with their plans and this will infuse fresh investments in the market, he said.
The NDA getting another five years means continuity of reforms and this should be seen in a very positive light, said Jacob Abraham, 24, a senior network quality coordinator with a web services provider based in Bengaluru. Jacob said, at the moment, BJP is the only party that can make a big difference to the country’s development in the next 10 years. “In the last five years, the government has already taken steps towards ensuring overall development, but there’s much more left to be done," he said. “They’ve tried to curb corruption through demonetisation and have brought rural development by introducing better schemes," he added.
It’s not just about development, said Sameer Latke, a Thane-based general physician, but also about the transparency in doing business. “I am happy with the election results as we will see more progress in the coming years. As a doctor, I registered a private limited company a few years ago. From that experience, I can say that though the compliance burden on companies has gone up, it brings transparency in the long term," he said.
What it means for investors
While the markets may have rallied to applaud the verdict supporting a stable government, investment professionals and wealth managers urged investors to be cautious.
Harshit Dravid, 32, senior manager, business development at Flipkart, who belongs to Prime Minister Narendra Modi’s constituency Varanasi, is doing just that. Dravid said he will not go by the current market rally euphoria and wait and see what new policies the government brings in. “If I talk about stock decisions, it will mostly be in large-caps. Keeping the election euphoria aside, I will wait for some actual reforms and signals at the sector level before I choose my small- and mid-cap stocks," he said.
Experts find the market rally to be a short-term phenomenon. “The market is a little over-rated now. After one or two weeks, the focus will shift to global factors like crude oil, currency and international market," said Varun Girilal, executive director and co-founder, Mitraz Investment Advisors. Experts said markets trade at relatively high valuations, even on a trailing basis.
Some fund managers have advocated taking a long-term view. “Given the macroeconomic indicators, earnings reported and management commentary and valuation, it’s prudent to take a long-term view of the investment opportunity. From here, the focus will shift to priorities in public expenditure, and economic reforms," said Sachin Relekar, chief investment officer (equities) at LIC Mutual Fund. Experts also identified market segments that hold potential even in relatively expensive scenarios. “We see more value and upside in the mid- and small-cap space hereon. With NDA coming back into power, we can expect local investors to take comfort in the mid- and small-cap space with a longer two-to-three-year horizon and inflows could resume in them," said Rusmik Oza, head of fundamental research, Kotak Securities Ltd.
While individuals have cheered the election verdict, the second stint of the government, according to Vaijinath Dhande, an Aurangabad-based chartered accountant, should be seen as a chance to complete the unfinished agenda. “What is important is that the NDA will now have a majority in Lok Sabha and Rajya Sabha, so it will be easier for the government to take important decisions," he said.
The most popular agenda in the minds of the investors is the roll-back of long-term capital gains (LTCG) tax on equity, which was introduced in Budget 2018. Any LTCG of above ₹1 lakh in a financial year is taxable at a flat rate of 10%. “The new government should definitely work something out in terms of taxation and remove the 10% LTCG tax. You are not giving that bonus or appreciation to someone who is investing into the growth of the country," said Singh.
Fund managers have also identified areas of policy reforms that are needed to drive investor returns. “Not fixing the banking sector NPA (non-performing asset) woes early on perhaps was a big miss. Aggressive recapitalization of banks should have been done early on to ensure smooth credit flow. We lost a lot of time in a multitude of regulations before eventually drafting the Insolvency and Bankruptcy Code (IBC) law. Even under IBC, progress has been patchy," said Anand Radhakrishnan, chief investment officer (equities), Franklin Templeton Asset Management (India) Pvt. Ltd.
Jobs were also an area of concern. According to Kesavan Nampoothiry, 24, content writer with an e-commerce website, employment continues to be an issue across the country and the government must focus on increasing employability across various sectors. Some also felt that development should be uniform. “I live in Bengaluru which is the hub for IT firms and startups, so for anyone to have a career in this industry, he or she has to move to Bengaluru. If the government focuses on uniform development of all regions, it’ll open doors for more opportunities," said Abraham.
A clear mandate always gives the government a lot of elbow room to push important reforms and we hope the government keeps the momentum going.