Govt likely to pursue reform agenda with renewed vigour
Thu, 12 Nov 2015 10:28:58 -0700
Going ahead, the pace of domestic reforms and global factors, especially the US Fed rate hike, could decide the course of the market
TAGS: ECONOMY WATCH, BIHAR ELECTION, REFORMS, MODI GOVT
The BJP, with a tally of 53 seats, registered its worst performance in Bihar state elections in the last 10 years. Although JD(U) also registered its worst performance in the last three elections, it was RJD’s stellar performance (80 seats) which tilted the elections results decisively in favour of the ‘Grand Alliance’.

The Bihar election outcome is a clear negative for the Indian equity market and can (a) hamper the NDA’s attempt at strengthening its position in the Rajya Sabha; and (b) embolden the opposition parties in intensifying their resistance towards key reforms such as GST and land bill during the forthcoming winter session.

The election results of Delhi and Bihar make us believe that state elections are mostly a referendum on local issues and local leader, while national issues and central leadership could have little bearing on them.

The silver lining from the shocking Bihar election results is that it gives the NDA an opportunity to strategise for the forthcoming state elections and also embark on longer term corrective measures (3.5 years till the next general elections in 2019) by focusing on factors which would appeal to the electorate (development, employment, safety, low inflation etc.)

Since September 2015, global equity markets have advanced while the Indian market has been a clear laggard (in spite of an higher than expected interest rate cut by RBI and a favourable macro-economic environment) weighed down by Bihar elections outcome and sluggish Q2FY16 results.

With uncertainties around Bihar elections and second quarter FY16 results largely behind us, we expect Indian equities to consolidate at current levels. Retail participation in Indian equities continue to be impressive with October recording inflows of Rs 6,000 crore although FII flows have turned negative in November.

Going ahead, the pace of domestic reforms and global factors, especially the US Fed rate hike, could decide the course of the market. We expect the government to pursue the reform agenda with renewed vigour by speeding up the reforms and decision making process through the executive route although legislative route might continue to be challenging.

We believe that the Indian economy is slowly improving with (a) urban consumption showing signs of revival; (b) government spending improving; (c) inflation remaining benign; and (d) comfortable government fiscal deficit.
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