3 years of Modi government: It’s a buy call by market mavens

MUMBAI: Dalal Street is more than pleased with the Narendra Modi government and its achievements in the past three years. An ET Markets poll of 40 market players rated its performance in handling the economy at 7.5 out of 10. Fund managers said the comfort on investing in India is far higher now with many expecting a rating upgrade from International agencies as an endorsement of the progress made so far.

About 78% of poll participants said reforms in the past three years have progressed at the pace anticipated. Twothirds said the Nifty will end 2017 at between 10,000 and 10,500 points while 10% said it will cross 10,500 levels by then. The Nifty ended at 9,400 on Friday.

In the past three years, the government has paved the way for a stable, predictable outlook for India and initiated policy change with a high focus on execution, said fund managers.

“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,” said A Balasubramanian, CEO, Birla Mutual Fund.

“Various measures taken by the government have helped in reducing volatility in the stock market, improved predictability for the future as well as given the necessary stability in order to provide comfort to investors both domestic and global.”

The Sensex has gained 26% since Modi’s historical victory in May 2014. Foreign institutional investors (FIIs) have invested Rs 43,500 crore so far this year and nearly Rs 1.51 lakh crore in Indian equities in the past three years. Domestic institutions have pumped Rs1.77 lakh crore into stocks in the past three years.

About 55% of poll participants declared the government’s performance in managing the fiscal deficit to be ‘excellent,’ while 33% gave it a ‘good’ rating.

“Tax reforms led by GST (goods and services tax) have been one of the key achievements for this government while its sustained attack on black money will result in an improved tax to GDP ratio which in turn will create a more sustainable fiscal environment,” said Ashok Wadhwa, group CEO, Ambit. “Global investors, both FIIs as well as strategic investors, have shown significant appetite to invest in infrastructure or new capacity creation.” GST, one of India’s biggest-ever tax reforms, is expected to be implemented from July 1.

The Sensex rallied sharply after Modi led the Bharatiya Janata Party to a sweeping victory in May 2014 amid expectations that the new government will push ahead with badly needed reforms to revive growth.

“We salute the PM for reviving India's confidence and sense of hope that was adrift till a few years ago,” said Manish Chokhani, director, Enam Holding. “What I look forward to is massive recycling of government assets worth more than $1trillion, cuts in interest rates to boost investment, massive initiative on skills and job creation and a simpler tax code.”

RUPEE OUTLOOK
About 35% of poll participants believe the rupee will weaken from current levels and trade around 66 to the dollar whereas 24% expect it to strengthen to below 64. It ended at 64.04 on Monday against the dollar. The rupee has gained about 6% so far this year. About 44% of those polled said that India’s benchmark bond yield will be 7-7.10% by yearend while 28% said it would be at 6.80-6.90 levels.

About 51% expect money to flow back to the US if the dollar strengthens when proposals to cut taxes are implemented while 38% said FII outflow is unlikely.

“The prospects for the Indian market remain good, particularly because of the decent level of growth, the government’s intentions to improve governance and implement reforms and—important if we compare India with other emerging markets—its limited sensitivity to Chinese growth,” said Maarten-JanBakkum, senior emerging markets strategist at NN Investment Partners that manages $205 billion in funds. “Indian valuations are not excessive compared with what we have seen in the past.”

About 68% of poll participants rated Reserve Bank of India’s coordination with the government in framing policies as ‘usual’ while 23% said it had been ‘outstanding’.

However, some have suggestions on the tax front as India’s reputation on this must improve, they said. “The government needs to create an environment which encourages local investors to invest in long-gestation projects and kickstart the investment cycle and also the government needs to focus hard on tax enforcement without tax harassment,” said Wadhwa of Ambit.