By Aryan Agarwal
Bulls on Tuesday took Nifty to a new life-time high of 9,122 points during the intra-day trade, as Indian stock markets celebrated Bharatiya Janata Party’s clean sweep in Uttar Pradesh state assembly polls. A massive surge of 1.71% in Nifty and strengthening of the rupee to its strongest level since April last year i.e. 66.13 per dollar, cheered investors as markets resumed work after the Holi celebrations in the backdrop of election results in five states on 11th March.
Elections have always been a key factor in deciding the path for market indices. In general markets hate uncertainty whether in taxes, laws, macroeconomic indicators or government. Markets like a stable government as they have the necessary mandate to execute reforms, create business friendly policies and provide certainty in medium and long-run.
U.P. is the most populous state in India. In the last 26 years (except 1998-2002), no political party has ruled in U.P. and the Centre simultaneously. However, a resounding UP win will not give the party an instant absolute majority in Rajya Sabha, where BJP is short of 50 seats, whereas the state offers only 10 before the 2019 elections. However, this chest thumping majority will certainly increase the say of the government in the upper house. The win is expected to ease the policy reform path of the Modi government as they will find it easy to pass key bills in the parliament.
This, in turn, will help the government to push some crucial reforms harder and faster, which are stuck because of political opposition on heated matters such as land and labor. BJP leaders say that the focus will now be on compliance and improving the ease of doing business. Also, a far more aggressive campaign against illegal wealth is expected, with a focus on the implementation of the new benami law in property transactions. It is also expected that following the path since 2014 the government may announce some more reform agendas in the coming months.
The Bigger Picture
Apart from BJP’s major victory the falling crude oil prices and sentiments around the quick implementation of goods and services tax have helped Indian stock markets rally at a time when corporate earnings growth have largely remain mute. There are lots of foreign investors sitting on the sidelines trying to get a sense of next Lok Sabha polls of 2019. These results will give them more comfort and confidence to invest in India. So far, this year, the Sensex and the Nifty have gained around 11% each, better than the 8.8% rise for the MSCI Emerging Markets Index.
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