The incumbent Congress-led UPA alliance has achieved a near majority; an almost best-case scenario, and should translate into: a) Stable Government for next five years; b) More reform-oriented agenda, with greater policy making flexibility; and c) More economic/results-oriented governance.
A strong Government mandate should result in: a) Upward bias in growth expectations (maintain 5.5% FY10 expectations for now) – investment rather than consumption driven; b) Stronger currency – return of enhanced capital flows; c) Stable rate scenario, with a 50bps downward bias.
This should be a big bang for the market – we expect it to hold gains at the 13000-13500 index levels for now. The big question – is it a game changer? Can India get back to the high growth – high valuation of recent years? This event probably does open up meaningful possibilities, but there’s a lot to do, and there could be a lot in the way. We see capital/liquidity-driven and beta-plays as the bigger immediate beneficiaries – infrastructure, banks and stressed balance-sheets.