Welcome back, Mr Narendra Modi! We are happy to have you," India said on Thursday. Markets screamed, “Abki Baar Sensex Chaalees Hazaar (This time, Sensex at 40,000)", instantly. As India creates history with a repeat majority mandate for the first time in 48 years, BSE Sensex has also witnessed unprecedented growth that only seeks to reinforce our belief that a strong government is the biggest ally for wealth creation.
This also shows the comfort the markets have had with the continuation of the policies of the government. The sustained hard work for the past five years will now allow the prime minister and his team to take up several reforms in his next term and make India a country that is entirely business friendly. His government has streamlined regulations, tackled corruption, promoted entrepreneurship, created jobs and worked towards a newer and better India. However, this is just the beginning. In the next five years, markets have a realistic hope for BSE Sensex crossing 50,000 and 60,000.
It is important to remember that when it comes to markets, the election is a specific event with a huge long-term impact on wealth creation due to policies and programmes that the new government can undertake. The 2019 Lok Sabha elections witnessed the highest recorded turnout in any parliamentary poll in India, with an estimated 67.11% voter turnout.
The past five years saw the incumbent government taking some strong reform measures on the back of their decisive majority. The GST Act streamlined the country’s tax mechanism, the Insolvency and Bankruptcy Code (IBC) helped restore the lender’s confidence, while the direct transfer benefit system is a direct result of the government’s commitment to financial inclusion. The action taken to reduce corruption, ensuring more money is available to beneficiaries due to schemes like Swachh Bharat, Ujjwala Yojana, Jan Dhan and Aadhaar is hugely successful at the grassroots. These measures will not only have a visible impact on the economy today but also in the coming years. Although the market saw a lot of volatility through this period, the strong fundamentals of the country continued to pull potential investors. This was a major reason for foreign institutional investors (FIIs) to continue having faith in the Indian markets. The Make in India initiative saw the government pushing for more manufacturing domestically and the Digital India movement saw the digitisation of the economy across the spectrum. The doing business ranking also improved from 142 in 2014 to 77 in 2019, globally. All these measures along with their effective implementation have helped India be on track to become the fifth-largest economy in the world.
The new government has its task cut out. In the short run, it is expected to address the NBFC (non-banking finance companies) crisis and ensure the system has enough liquidity. While the IBC has performed favourably when compared to other recovery mechanisms, a lot more needs to be done to streamline the process and the law needs more teeth. The decline in the fortune of the infrastructure sector needs to be arrested by putting systemic solutions in place. The accordance of infrastructure sector status to affordable housing will go a long way in giving a big push to the segment and its allied industries. GST has been a landmark legislation and tax reform for the country; fewer tax slabs need to be put in place to make it more effective. All these measures are aimed at providing an impetus to the core sectors of the economy and will give the markets a huge boost.
On a macro level, the US-China trade war has major implications for the Indian market. With manufacturing facilities potentially moving out of China, the government needs to ensure that China’s loss becomes India’s gain. Oil continues to be the Achilles’ heel for the Indian economy, with India among the largest importers in the world. The political crisis in the Middle East with Iran and the US is, therefore, something the market will be watching closely. Lastly, over the last decade, we have seen the longest bull rally ever in the US markets, speculations abound regarding how long before the markets catapult and, in turn, affect markets across the globe.
As we embark upon another chapter in Indian democracy, it is important to note that markets always want a decisive government that is invested in carrying out strong reforms and has the necessary political will to back its decisions. The stock market represents the wealth of the common man, and by extension, the wealth of the nation and it is, therefore, the responsibility of every government to create a conducive environment that will ensure value creation for the investors. Unless market intervention is required, the incoming government would do well to remember that “Minimum Government, Maximum Governance" is the way to go.
Ashishkumar Chauhan is managing director and chief executive officer, BSE