Domestic brokerage firms are positive on Indian economy and macro and see a strong likelihood of FII inflows coming into Indian equities after Narendra Modi swore-in as the Prime Minister of India, along with his cabinet of 71 other ministers, which constituted 30 names for cabinet and 41 as the Ministers of State (MoS). They believe the new government to be shy of populism.
Brokerage firm Phillip Capital believes that the distribution of seats displays continuity at its best and equitable treatment of allies, which is a big plus. The full budget in July will shed more light on the possibilities and scope of each ministries. Social inclination is widely anticipated however along with continuity in capex and earlier policies and reforms, it said.
Seat distribution appears to reflect the BJP's 240 MP majority. Key ministries like Defence, Home Affairs, Road Transport, Finance and External Affairs will see the same faces of BJP as in the previous term, noted the brokerage. Other key ministries including Agriculture, Farmers Welfare and Rural Development along with Health, Family Welfare and Chemical & Fertilizers are with BJP.
"In the third term of this coalition, with well experienced faces helming the key ministries, we see likelihood of incrementally positive/strong FII flows along with buoyant domestic flows. As a result, we retain our medium to long term positive stance on Indian macro and equities," Phillip Capital added.
Another brokerage firm Kotak Institutional Equities said that fears of the current coalition government being unstable are too premature. The more probable outcome would be slower decision making with slower passage of legislative agendas given a larger opposition and major executive decisions requiring a more consultative approach.
"All solutions to electoral losses need not be translated into populism and away from a macro framework built over the last decade. We expect the government to remain fiscally prudent and populism to be used opportunistically," said Kotak. "Risks of a more populist Union Budgets would increase if the upcoming state elections’ results turn adverse for the BJP," it said.
Non-institutional investors remain extremely confident about making high returns from the Indian market, irrespective of prices and valuations. Institutional investors can choose to fight, flee or join, said Kotak. Continued large inflows into the market from non-retail investors simply reflect their expectations of high expected returns from the market, which are based on past returns. FPIs have been quiet for a while from a flow perspective, it said.
On the other hand, Nirmal Bang Institutional Equities said that some re-balancing of expenditure towards the ‘bottom of the pyramid’ and support for employment, income and consumption beyond the formal sector may be inevitable. Aggressive fiscal consolidation may take a backseat, even after accounting for the higher RBI dividend, it said.
"We do not expect significant deterioration in macro fundamentals. India’s macro fundamentals have largely been stable. Given the tenuous nature of coalition politics, we would remain cautious at least in the near term, with a bias towards Defensive Large Caps focussed on the consumption theme along with Financials," Nirmal Bang said.
For a one-year perspective, Phillip Capital has picked SBI, Bank of Baroda, Canara Bank, PFC India, REC, Shriram Finance, Muthoot Finance, UltraTech, Siemens, Hero MotoCorp, TVS Motor, Divi's Labs, Syngene, APL Apollo, Jindal SAW, IGL, Aarti Industries, Vinati Organics, Praj, Gokaldas Export, SP Apparels.