Angel Broking says it expects that Prime Minister Narendra Modi-led BJP’s landslide win in the recent Uttar Pradesh state elections will provide political stability and room for continuing economic reforms, and will lead to more money flowing into equity markets.
Angel Broking says it expects that Prime Minister Narendra Modi-led BJP’s landslide win in the recent Uttar Pradesh state elections will provide political stability and room for continuing economic reforms, and will lead to more money flowing into equity markets. However, the research and brokerage firm also raised concerns that domestic and global headwinds, such as slow corporate earnings and investments, and China, Euro Zone and US policy statements must be dealt with to justify the current premium valuations of Indian stock indices.
“The overwhelming mandate received by BJP in the State elections especially Uttar Pradesh and Uttaranchal has paved a path for sustained political stability in the economy along with continuance of the economic policy reforms initiated by the Government,” Mayuresh Joshi, Fund Manager, Angel Broking, says.
The firm’s head of research Vaibhav Agrawal also expects that with the huge UP win, BJP remains a favourite to win the general elections in 2019, giving it another seven years to continue its pro growth policies. “This will be positive for the country as it gives assurance of bringing more reforms and also impart stability in the country,” Agrawal says, adding, “Thus we believe that Indian equities are set to see higher inflows in the equities, hence we remain bullish on the markets.”
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However, Joshi also cautions that the valuations are high, with the benchmark index trading around 19-19.5x 1-year forward earnings. Joshi lists out three domestic headwinds for the Indian markets:
- corporate earnings which have remained soft and tepid so far, which the brokerage expects to recover in the second half of the next financial year 2017-18;
- private capital expenditure cycle, which the firm expects to pick up by the fourth quarter of the next financial year 2017-18; and
- interim impact in the implementation of GST, which he says, might have a push through in the inflationary trajectory but would over the next few years lead to better compliances and tax collection efficiencies on the Indirect tax front.
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On the global front, Joshi says markets are bracing for delay in recovery of the Chinese markets, fragile recovery in Europe and state of Eurozone economy, ECB stance, local elections in France, and US President Donald Trump’s policies’ impact on world trade and on emerging market currencies and bonds.
Despite these headwinds, Joshi says that “as domestic factors start becoming more positive and we have respite from global factors over the next few months, there is a high probability of the markets rerating thereby justifying the premium valuations that the markets are discounting on a forward basis.”