Will markets' focus turn to earnings, finally?
reforms under a coalition government owing to increased reliance on allies this time compared to the single-party majority seen in the previous two terms. As such, the broad policy direction may not materially change, but a potential tug-of-a-war between driving consumption and capital expenditure (capex) could keep equity investors on tenterhooks. Kotak Institutional Equities expects the new government to continue with its investment-led economic agenda, but it may tweak its priorities to support consumption and employment.
Amid elevated inflation, rural incomes have been under pressure. To fix the ailing rural economy, there may be increased spending on welfare schemes to boost demand in the hinterland. This would mark a shift from the government's earlier stance, which was primarily focused on infrastructure development that led to sharp re-rating in industrials, railways, defence, and public sector stocks.
The government may utilize some fiscal space for a welfare spending boost in the near term, though a broad shift from high infra spending is unlikely, according to Jefferies India analysts. The brokerage does not envisage much deviation from the 6.5-7.0% GDP growth path. Nonetheless, focus hereon could turn to earnings growth visibility and fundamentals, which were largely being ignored.
“The 2024 election results may finally compel investors (institutional and non-institutional) to focus more on numbers and less on narratives," said the Kotak report dated 5 June. “We would watch for any change in the stance of retail investors, who have been the major force behind the market in terms of flows," it added. So far in 2024, domestic institutional investors have been net buyers of Indian equities worth ₹2 trillion,
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