NEW DELHI: India’s marathon elections are over and so are the fireworks.
The benchmark S&P BSE Sensex gauge of stocks has pulled back after briefly climbing above the record 40,000 level on Thursday when trends showed Prime Minister Narendra Modi’s party sweeping to a comfortable victory. While the election outcome assures policy continuity and stability, it comes up against the many headwinds facing investors.
“The market is likely to quickly revert to near-term concerns: slowing consumption and a brewing non-bank finance company crisis; the combination of weak corporate earnings and elevated multiples,” Sanjay Mookim, India equity strategist at Bank of America Merrill Lynch Ltd wrote in a report Friday. “We don’t see election results changing these bottom-up concerns.”
The government may see the thumping victory as a validation of their approach of the last five years despite the “recent popular narrative” of slowing demand and a jobs crisis, the strategist wrote. There’s likely be little political pressure to stimulate the economy in the near term, he said.
The brokerage maintained its forecast of the NSE Nifty 50 Index ending the year at 11,300, 5% lower than its close on Monday.
Here’s what to expect from Modi’s second term:
BAML Economist expects RBI to transfer $14 billion to $42 billion of surplus reserves, which could provide the government room to recapitalize state-run banks and spend more on infrastructure.
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