Markets continue to give thumbs up to Modi government in three years

Indian stock market is on an upward march in the last three years as Dalal Street is more than pleased with the Narendra Modi government.

During the three years of Modi government, Indian equities have surged to record highs. Data shows that the benchmark Sensex and Nifty have rallied a whopping 23 per cent and 28 per cent respectively ever since Prime Minister Narendra Modi took over the reins of the country on 26 May, 2014.

On several occasions in the last three years, the Sensex has crossed the psychological 30,000-mark and the Nifty reached as high as 9,500. Last week, India’s total market cap crossed $2 trillion for the first time, thanks to the relentless buying by local and offshore investors. Presently, India is the ninth largest equity market in the world. India’s contribution to global M-cap has risen to a six-year high of 2.7 per cent against a six-year average of 2.2 per cent.

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According to reports, market capitalisation of companies listed on the BSE has grown to Rs 127 trillion in three years, rising 59 per cent from Rs 80 trillion on 16 May, 2014.

Reports suggest that mid-cap and small-cap stocks have outperformed the blue-chips ones. The BSE mid-cap and small-cap indices have gained 73 per cent and 71 per cent, respectively. As a result, total market capitalisation has gone up 47.5 per cent.

Important macroeconomic parameters like trade deficits, foreign exchange reserves and inflation have improved significantly in the last three years. A further expansion in the market is expected. But what is the reason for the turnaround in markets?

The Modi government is addressing the issues that have been holding the economy back. Experts say rather than looking at quick fixes, the Modi government has been focusing on structural reforms. Undoubtedly, various measures taken by the government have helped in reducing volatility in the stock market.

“The Modi government’s focus on utilising and increasing public spending has not only brought stability to the Indian economy. It has also improved the outlook for India tremendously,” A Balasubramanian, CEO of Birla Mutual Fund was quoted as saying.

Particularly, steps like delegating financial power to states, implementing Goods and Services Tax (GST) reform, banning high-value currency and replacing them with new series, bringing in more clarity in tax regime, amending tax treaties with Mauritius and Singapore are the reform initiative which have given thumps up the markets.

This is not to dispute that these three years have been marked by bouts of selling by foreign investors, thanks to the ‘black swan’ events like wobble in the Chinese market, free fall in global crude oil prices and Brexit which have put brakes on the rally in the markets and prompted the foreign portfolio investors (FPIs) to dump Indian shares. However, the domestic institutional investors (DIIs) have stepped up purchases in these three years.

While FPIs bought shares worth Rs 1.3 lakh crore, the DIIs bought shares worth Rs 1.1 lakh crore.

Pockets of Indian economy such as consumer goods, engineering export, automobile components, automobiles and cement have done exceptionally well in the last three years. It is expected that a good monsoon will give a fillip to consumption demand in all these sectors.

Amid all these, challenges remain. Bad loans continue to remain a stumbling block for economy and markers. Private sector banks have been jostling with stressed assets of a staggering Rs 10 lakh crore. Similarly, the stressed assets of public sector banks are pegged at a whopping Rs 6.07 lakh crore.

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