The ten years of Congress-led-UPA rule in India has seen many ups and downs. The regime had a good start under the able leadership of one of the most eminent economists of India, Dr. Manmohan Singh. However, as time passed by, the regime had started to lose its luster. By the time the UPA Government returned for a second term, the Indian economy started to decline at an alarming pace. The global recession also played a significant role in undermining the stability of the economy. And, the paralysis that struck the government hindered any chance at meaningful reform. Nothing seemed to go right during that period, and a series of scams that followed further damaged the economy. Almost every morning started with the news of a new scam and the name of a new tainted minister. These factors led to the diminishing trust held by Foreign Investors, and the high rate of inflation also created an uninviting economic atmosphere. As a result of all of these issues, Indian stock market, including NSE’s NIFTY and BSE’s SENSEX, witnessed record lows.
However, times have changed and so has the strength of the Indian economy. The distrust of the UPA Government was clearly visible in the results of the General Elections 2014. The people voted for regime change and elected Mr. Narendra Modi as their leader, giving the BJP-led-NDA a whooping majority. The very announcement of Mr. Modi as the BJP candidate for Prime Minister had an immensely positive impact on the markets. The push for change started to once again attract the eye of investors. SENSEX, which had dwindled to a bare 18000 point mark, started showing a constant upward trend. Record highs were being recorded almost every day. With the change in the Government and the possibility for new economic policies the SENSEX has now touched the record 28000 mark; in addition, NIFTY is also at a record high of 8000 points. Systematic investment plans (SIPs) of mutual funds are back in vogue among retail investors as the upsurge in India’s stock market has rekindled their interest in equities. Fresh SIP registrations with mutual funds have more than doubled since January this year, showing more retail investors are willing to bet on the market over the longer run because of hopes of an economic revival. Mutual funds have pumped in nearly Rs. 25,000 crore in equities since April 1. The market continues to attract FII investments with nearly Rs. 93000 crore already this year. This also gives an added advantage to the NDA Government. The government has already expressed its intent of reforming archaic labor laws; also, reforms are in place for land acquisitions, the deregulation of diesel prices, a unified tax regime and attracting FDI in sectors like insurance, defence and railways. India is an “OVERWEIGHT” now among the Global Emerging Markets (GEMs). Allocations to India by Asia-ex Japan and GEM funds reached record levels, moving up 2.5-2.8% over the past year. Russia (down 1.6%) and Brazil (down 1.3%) have paid the price with GEM funds allocations falling over the year. Asia ex-Japan allocations to India rose to 13.2% in September (up 0.3% m-o-m).
Nevertheless, there are still plenty of risks. In spite of such a healthy and conducive economic atmosphere, it would be very interesting to see how the Modi-led Government reacts to the changing times. The policies that the Government has enacted look very good on paper. However, a failure to effectively implement these policies could result in a failure that would have disastrous consequences for the Indian economy. The Indian Government may also face difficult times with respect to Global economies. It will indeed be interesting to see how Modi and his team deal with such scenarios and defend the country from the possibility of another economic crisis.
– Victor Dhar, PGDM, Vignana Jyothi Institute of Management, Hyderabad