Indian stock markets could re-rate, but what can Narendra Modi do?

Jun 30 2014, 14:25 IST
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Reforms by PM Narendra Modi to drive re-rating. (PTI) Reforms by PM Narendra Modi to drive re-rating. (PTI)
SummaryReforms by Narendra Modi govt to drive markets, though headwinds exist near term.

likely trend down: On the oil & gas sector, we think the government will take the following steps:

(i) Diesel price hike to continue at R0.5/litre every month. This will mean the subsidy is likely to be zero by the end of the year.

(ii) Start hiking LPG prices in a similar manner every month to bridge the subsidy.

(iii) The kerosene subsidy is more difficult but we may see a price hike over next six-nine months.

#5: Tackling inflation: With the El Nino leading to a possible sub-normal monsoon, the government will have to combat food inflation on a war footing. We see three measures being taken:

(a) Supply side management: The government could focus on the supply side to manage inflation. For example, in case of a food shock (if there is a drought), the government would try to control food inflation by releasing excess food buffer or relaxing import norms.

(b) Modify APM Act: We see a modification to the APM (administered price mechanism) Act that will allow farmers direct access to the markets.

Cut wastage: A longer term issue is to cut wastage in food by expanding coal storage and improving warehouse facilities.

#6: GST and DTC

n Goods & services tax: The GST will create a common market with uniform tax rates in the country and reduce logistical costs/delays. The union government will likely address the issues raised by the state governments and kick-start GST implementation.

n Direct Taxes Code: DTC will likely simplify direct tax laws and widen the tax net, thus boosting overall direct taxes. The government will likely implement this over next one year.

#7: Infrastructure measures

(i) Coal mines to be e-auctioned

(ii) NELP (New Exploration

Licensing Policy) to be made investor friendly to attract more investors.

(iii) PPP in sectors like railways, defence, etc.

(iv) Restructuring of the premium paid by the developers to the NHAI so that developers are incentivised

to complete non-viable highway

projects.

#8: Finance sector measures

(a) Liberalise External Commercial Borrowings (ECB) norms

(b) Debate on replacing short term capital gains on shares with STT

(c) Sops for retail investor in

equity markets

(d) Norms for introduction of

REITS

#9: Labour reforms

We think this is unlikely in the near term, but something the government will consider over next two-three years. However, in the near term government may allow the states to undertake labour reforms if they want. Constitutionally, labour laws are part of the Concurrent List where both Centre and state can formulate

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