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Home Articles Election 2019 and the Stock Market

Election 2019 and the Stock Market

IndianMoney.com Research Team | Updated On Friday, May 24,2019, 03:01 PM

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Election 2019 and the Stock Market

 

 

Prime Minister Narendra Modi led the BJP to a massive victory on May 23rd 2019. PM Narendra Modi sealed a second term as the Prime Minister of India with a landslide victory. The BJP won 303 seats and the NDA a mammoth 353 seats. Along the way PM Modi touched a major milestone. This was the biggest repeat mandate in 48 years. The last time someone won like this was way back in 1971. Indira Gandhi won a massive victory in the 1971 elections with a tally of 352. The slogan then was ‘Garibi Hatao’.

This is what the Prime Minister had to say on his massive victory. “Together we grow. Together we prosper. Together we will build a strong and inclusive India. India wins yet again.” A number of World leaders Donald Trump the President of the USA, China’s Xi Jinping, Pakistan’s Imran Khan Israel’s Benjamin Netanyahu and Russia’s Vladimir Putin congratulated Narendra Modi on this great win.

Now comes the big question. What impact will Election 2019 have on the Stock Markets? Want to know more on Investment Planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

Election 2019 and the Stock Market

What are the Major Challenges for the New Government?

  • Prime Minister Narendra Modi has scrapped several archaic rules and laws. Still, a lot of work needs to be done on the ease of doing business in India. This is a priority job. The ease of doing business in India must go up so that people from abroad can come and do business in India. This is crucial for job creation in India. Reforms are also needed in areas like land and labor. India enjoys the 77th rank in the World Bank’s Ease of Doing Business Rankings in 2018.
  • Prime Minister Narendra Modi has the job of cleaning up and re-organizing the banking sector in India. Most of this task has been accomplished in the last 5 years. A few more reforms in the banking sector are the need of the hour to consolidate the gains already made. The delays and glitches in the IBC (Insolvency and Bankruptcy Code) must be ironed out.
  • The Government will soon present the Union Budget 2019 to rejuvenate the rural economy and stimulate retail demand in India.
  • The Government has to face the challenges in the NBFC sector. After the IL&FS fiasco, a major liquidity crisis threatened the NBFC sector in India. ALM or the asset liability mismatch became a major problem for the NBFCs. Fortunately; raising funds has not been a problem for the large NBFCs.
  • Credit defaults and credit rating downgrades have led to a small crisis in the debt mutual fund sector in India. Public trust must be restored in mutual funds.
  • The new Government has to solve the crisis in the airline sector with the collapse of Jet Airways. There are several problems with the telecom sector in India. This has put severe stress on the banking sector in India.
  • There’s a slowdown in the auto sector in India. The new safety and emission norms could impact the profitability of auto and auto component firms.
  • The Government must double its focus on “Make in India”. This has largely been “Assemble in India”. The Government must focus on manufacturing and product development in India.

SEE ALSO: Why Is Stock Market Going Up?

Invest in Equities with Modi 2.0

The BSE Sensex crossed the 40,000 mark for the first time, after PM Modi’s record victory. Yes, the Sensex has scaled Mount 40K. Nifty 50 also crossed the 12,000 mark. This begs the question, which sectors must you choose to invest with Modi 2.0?

  • The Government has set its sights on the rural economy. The focus is on rural infrastructure (This includes rural housing and roads). The Government also seeks to boost farm income. Expect Companies dealing in farm equipment and rural finance to do well. Cement and agri-input companies will do well, boosting rural demand.
  • There a serious Government focus on infrastructure development. This is river linkage, roads and toilets. Cement and construction Companies could see rapid growth.
  • This Government takes defence seriously. Expect oil and gas and the power sector to do well as PM Modi focuses on National Security.
  • Invest in banking stocks with a 3-5 year time horizon. Expect the banking and financial sector to do well in India. Private Banks have been doing well and gaining market share at the cost of the PSU Banks.
  • Insurance is another sector which is doing well. There’s decent growth and lot of scope for market penetration in the term life insurance space. Many of the insurers enjoy reasonable valuations.

Invest in stocks with a 3-5 year time horizon. Expect rate sensitive stocks like banks, capital goods, cement, auto sector, real estate and metals to do well.

How Can the Government Boost the Economy?

  • The Government has to revive demand. It must put money in the hands of the middle class. It must cut personal income tax rates in the Union Budget 2019 which may be presented in early July.
  • The Government must boost public investment in India.
  • There’s lot of talk on GST 2.0. Petroleum could be brought in the GST net. There are currently 4 GST slabs at 5%, 12%, 18% and 28%. These could be converged into just 2 slabs. The Government could bring cement and automobiles out of the 28% GST slab and into lower slabs as GST revenue stabilizes.
  • Startups face a number of issues which must be resolved. The issues pertain to listing norms, dual class shares, revised e-commerce rules and data authentication vis-à-vis the Aadhaar.

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