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Modi wins 2019 Lok Sabha elections with a historic mandate: Top brokerage views on the verdict

Modi wins 2019 Lok Sabha elections with a historic mandate: Top brokerage views on the verdict

Modi wins 2019 Lok Sabha elections with a historic mandate: Top brokerage views on the verdict
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By CNBC-TV18 May 24, 2019 9:15:19 AM IST (Published)

Brokerages cheered the election outcome and now expect the focus to shifty to more macro issues from election uncertainty. They expect RBI to lower repo rate by mid-2019 to provide liquidity stimulus and growth to rise in the second half of 2019.

Indian shares are set to open with gains on Friday as uncertainty around Lok Sabha elections faded after a historic mandate won by the Narendra Modi government. Election commission data showed Modi’s National Democratic Alliance has secured 350 seats, with the Bharatiya Janata Party alone cornering 303 seats in the 2019 general elections. However, negative global sentiment could limit gains for Indian shares.

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Asian shares traded near four-month lows and crude oil plunged on worries the US-China trade conflict could turn into a more entrenched strategic dispute between the world’s two largest economies.
Indian benchmark indices the BSE Sensex and NSE’s Nifty 50 hit all-time highs in the previous session but settled 0.7 percent lower on profit booking. Analysts said the market could further consolidate going ahead as the focus will shift to fundamentals and economy. At 7.00 am, SGX Nifty traded 62.50 points, or 0.54 percent, higher at 11,741.50, indicating a strong start for the Sensex and the Nifty.
Brokerages cheered the election outcome and now expect the focus to shift to more macro issues from election uncertainty. They expect the Reserve Bank of India (RBI) to lower repo rate by mid-2019 to provide liquidity stimulus and growth to rise in the second half of 2019.
Here are the top brokerage views for the 2019 election outcome:
Nomura
- The outcome is better than expected and promises a stable pro-reform government
- Focus is now on the new cabinet, reform agenda, the budget, and fundamentals
- Policy priority in the second term will be re-igniting growth with prudence as a secondary priority
- Expect a mix of rural policies, infra spending, tax simplification, and social investment
- Expect the government to reiterate its interim budget fiscal deficit target of 3.4 percent of GDP for FY20
- Expect fiscal consolidation target of 3 percent of GDP by FY21 to be delayed
- Do not foresee a major reversal of current economic conditions in the short term
- Growth is set to moderate from 6.6 percent YoY in Q4 2018 to 6.2-6.3 percent in the first half of 2019
- Expect a gradual recovery as Q4 2019 approaches
- India’s potential growth should rise to 7.5 percent over the next 5 years
CLSA
- With a bulk of disruptive reforms now behind, the focus will shift to growth
- Absolute majority would reduce the need for competitive populism
- Some near-term pro-farmer announcements would be likely
- Expect a further push to affordable housing
- Midcaps should be back in favor as domestic flows improve
- US-China trade war, along with rich valuations will keep FII flows in check
- Low inflation environment should leave a 50+ bps policy rate cut opportunity
- Top large-cap picks are ICICI Bank, Axis Bank, IndusInd Bank, HDFC, Ultratech Cement, Reliance Industries
- Top midcap picks are Godrej Properties, Sobha, Ramco, LemonTree
- Underweight on IT, staples, pharma, metals, two-wheeler
Credit Suisse
- BJP coming power implies greater stability
- Expect the government to prioritise judicial reforms, direct tax reforms
- Expect the government to prioritise administrative changes, more PSU bank mergers
- See government continuing infrastructure spending and labour law simplification
- An intervention from the government to support growth is unlikely
- Remain overweight on banks; like SBI, ICICI Bank and HDFC Bank
- Like utilities such as NTPC, Powergrid as we expect rates to fall
- Stay underweight on consumption; prefer Maruti, HUL, Havells
HSBC
- Near-term growth could inch up as election uncertainties fade
- Growth will depend on reforms to augment capital and labour
- On forex, expect short-term gains but long-term strains
- Forecast dollar-rupee to end the year at 73
- Expect GDP growth for the Jan-March quarter at 6.1 percent vs 6.6 percent in Oct-Dec quarter
- Expect the RBI to cut the repo rate again in mid-2019
- Expect growth to rise from 6.5 percent in H1 to 7 percent in H2 2019
Kotak Institutional Equities
- Capital goods, construction, building materials may benefit in coming days
- Corporate banks, power equipment, housing finance companies, and rural-focused firms will benefit
- Consumption stocks may take a back seat because of the slowdown in demand
- See more value in mid and small caps rather than large caps
- Investors can take comfort in mid and small caps with a 2-3 year horizon
- Priority of the government will be to revive economic growth and investment
- There is scope for monetary stimulus in the form of rate cuts
- Recommended picks are Aegis, Apollo Tyres, Cyient, Himatsingka, KEC
- Recommended picks are NCC, PNC Infra, Surya Roshni and Welspun Corp
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