The UPA’s historic victory is a strong vindication of its various economic and structural reforms as well as its inclusive growth-oriented policies.
Markets made a historical and unexpected recovery last Monday, which surprised many. This upward movement of stock indices was a strong and sensitive reaction to the victory of the Congress-led United Progressive Alliance (UPA) in the Parliamentary elections, ensuring that they will form a stable and secular government.
Market participants viewed the general election results differently. “We think the decisive result is a big positive for markets as it will lead to a stable government, removes months of uncertainty, and will allow the Congress the space to pursue reforms. We think pension, insurance, banking reforms and disinvestment may be back on the agenda,” Goldman Sachs, a leading investment bank said.
The election’s positive impact on business confidence is the final tenor in the chorus of evidence arguing for a pick-up in activity and investment demand in the second half of financial year 2010. Recent evidence from the PMI (Purchasing Managers Index) and demand indicators, a large easing of financial conditions, historical peak-to-trough declines, and a huge pent-up demand for infrastructure and affordable housing sing to the same tune. These election results may help India “decouple” further from the global economy by giving a fillip to domestic demand, and there are now upside risks to India’s gross domestic product (GDP) growth forecast of 5.8 per cent for 2009-10.
According to Goldman Sachs, the sectors that will benefit include cyclical sectors as the investment cycle turns, and those that play on rural demand, a continuing priority for the UPA.
“The sweeping victory secured by the UPA will ensure stability, policy continuity, and a great degree of space to implement reforms,” Citigroup said. With the fragmented nature of the opposition leaving it too weak to deter the reform process, Citigroup expects to see a boost to investment growth and policy initiatives. “While this does lend an upward bias to growth,” Citigroup stated that it is maintaining its estimates until there is further clarity on policy measures.
Industry won’t just look at numbers, socio-politico issues are cardinal for them than just arithmetic. Indian Merchants’ Chamber (IMC) has said that the unequivocal mandate given to the UPA government for the next five years was essentially a vote for stability, progress and secularism. The UPA’s historic electoral victory is also a strong vindication of its various economic and structural reforms as well as its inclusive growth-oriented policies.
“Belying the worst fears of a fractured electoral mandate, the Indian voter has acted decisively, with great maturity and wisdom, to give a free hand to the Indian National Congress and its centrist, secular allies to boldly lead the country in the coming years,” said Gul Kripalani, President, IMC.
But the scene was different in May 2004 when the Congress was taking charge of the Government. Indian stock markets witnessed heavy selling between May 7 and May 17, 2004. The Nifty had lost 25 per cent in just seven trading sessions.