We now have a stable government in place at the Center after a gruelling two month long election schedule. The NDA 2.0 or Modi Sarkar 2 as some put it, is in place now. This is something we had anticipated and wrote a couple of months ago in our email newsletter.
What does this portend? India will experience a period of long term political stability that is unprecedented. The extent of BJP victory and the fact that some parts of South India are still under-penetrated means that they may yet again cross 272 on their own. Telangana and Kerala may yield more seats. On the other hand, the rout of the opposition and a credible alternative means that the period of ‘stability’ may continue.
While not having a strong opposition is a risk to the polity, one has no choice in this matter now. A non-Congress government getting re-elected with absolute majority now holds the potential for radical economic and labour reforms.
We may expect reforms along the following lines:
- Fiscal reforms: ease regulators across all financial products consumed (investments, banking, insurance)
- Land reforms: Though its a state topic, expect ease of land acquisition that helps generate employment.
- Economic reforms: PSU disinvestment and privatization
- GST simplification and increase reach
- Agriculture reforms: expect thinning of the middlemen layer.
- Bankruptcy code will get more teeth, and perhaps even extended to marginalized individuals.
- Ease of doing business ranking will improve further.
- Labor reforms to allow flexy hiring and at the same time not harm the poor.
- Health reforms such as Ayushman Bharat will expand.
These reforms if deepened can ensure that companies can perform in a healthier atmosphere. We expect that GST will be strengthened. Bankruptcy laws will get more teeth. Expect PSU disinvestment and a massive infrastructure push. Expect new categories to get created with their respective multi-bagger stories.
However, there could be turbulence in the short to medium term which may impact the stock markets. The markets are already at historical highs not just in absolute terms, but also in the price-earning multiples. One should be cautious and invest for the long term.
For the discerning investing looking to deploy a large sum (UHNI/HNI), a good stock basket that capitalizes on this galloping economy will yield great results. My view is based on a thoroughly backtested model that has beaten the index hands down twice over. Contact us for more information.
For the average investor, a mix of well diversified and large-midcap funds would augur well for the long term. Go the systematic transfer route, if you have the cash to spare. Keep the SIPs running and turn over funds that are not doing well for a considerable period of time.
The coming years will be great, for an investor with conviction as the economy will try to reach its full potential. Some caution in the short term but conviction in the long run. That sums up the outcome!