Under Modi 2.0, a new beginning likely for stocks, mutual funds and bond market

The re-election of NDA government has put to an end to the uncertainty and raised hopes of the Indian economy and markets gaining momentum. Currently, speculation is rife about Modi Cabinet formation and policy pronouncements in terms of thrust areas.

Modi 2.0 has raised hopes of the issues being faced by the economy will be tackled in a firm and prudent way. This is the first time in world history that a Government that introduced GST in a country has been voted back to power. Global issues may bother a bit less in the near term though their shadows can cause linger problems. In corporate India, earnings growth challenge will continue in the near term till monsoon arrives. 

Speaking on the impact of Modi 2.0, Dhiraj Relli, MD & CEO, HDFC Securities said, "Mixed macro-economic indicators, concerns over a normal monsoon, NBFC challenge and consequent liquidity squeeze, rising rhetoric over the US-China trade war, a slowdown in the Chinese economy, and the surge in crude oil prices are some pressing issues that need to be addressed." 

Dhiraj Relli went on to add that investors now have political stability and predictability of economic policies which they normally look forward to before investing with a long-term time horizon. India’s economy has typically accelerated after the formation of new governments with some energised policymaking, greater predictability and higher corporate risk appetite. This augurs well for the country as there is going to be a continuity in policies. 

India needs to work on skills and lowering the cost of capital. Introducing police & judicial reforms are of paramount importance. PM Modi emphasis on doubling of farm income and housing for all as his personal passions, both of which have the power to lift India out of poverty. Also, the money waiting on the sidelines, whether domestic or international, will now have a great scope of heading to India - promising a higher growth rate for India. 

"Sensex CAGR of approximately 13 percent over last 10-years proves that equity as an asset class has the potential to deliver the best performance over the long-term. There is ample evidence that long term investors are expected to earn impressive returns, irrespective of geopolitical or domestic events," said  Relli. 

Investors may evaluate increasing their equity exposure in a phased manner if the current equity allocation is less than the desired exposure. And if they are bogged down by the spate of negative news on the domestic or global front, they have a great instrument in the form of SIP. For investors who don’t have the time or ability to shortlist good stocks, starting a DIY SIP in Nifty ETF or Nifty Next 50 ETF or Nifty Bank ETF makes a whole lot of sense. Recently we have seen the markets becoming narrower (eg 10 stocks drove 75% of Nifty's return since lows of 19 February). To avoid the downside of stock selection in such times, investing in Index funds or ETFs is ideal.