GST, low oil prices, FDI behind stock market’s phenomenal rise

Sanjeev Sharma

Tribune News Service

New Delhi, May 26

Stock markets hit record highs today with the benchmark BSE Sensex crossing the milestone of 31,000 points for the first time ever coinciding with the third anniversary of the Narendra Modi government.

Stock market may not be the definitive barometer of any economy but certainly is a widely tracked indicator though it only captures the market capitalisation of the listed companies.

The market indices have gained 25-30% since the Modi government came to power in May 2014. Low oil and commodity prices and forecast of a normal monsoon along with reforms like GST are among the major reasons for the market’s upmove backed by a flurry of recent policy decisions.

Deepak Jasani, Head — Retail Research, HDFC Securities, said the Sensex attaining 31,000 level is one more milestone in this upmove with the latest rise of 1,000 points taking just one month and at the same time Sensex grew 20% from its recent bottom in just five months.

Vinod Nair, Head of Research, Geojit Financial Services, said the market touched another milestone supported by continued buying interest on index heavy weights post expiry. “Expectation of good monsoon and a slow pace in interest rate hike by the US Fed continue to weigh the sentiment”.

Apart from the reform push by the government and India emerging as the fastest growing major economy in a gloomy global scenario, the government’s crackdown on black money and the lull in the real estate and gold as asset classes has led to increased inflows to financial assets as consumers shift from physical assets. The scenario has been accentuated by the fall in bank fixed deposit rates which leaves few avenues for investments.

At the retail investor level, it has been demonstrated in the confidence shown in mutual funds which have seen record inflows through Systematic Investment Plans (SIP) every month. Since equities as an asset class has been giving good returns, the inflows tend to multiply. Indian mutual fund industry’s average assets under management (AAUM) are at all-time high of Rs 18.58 lakh crore for March 2017, as per industry body, AMFI.

The government’s economic policy direction has also found favour with investors, both foreign and domestic, who see India as a promising economy. In a report on the three years of Modi government, Crisil Research said in the past three years, the Modi government has tackled some elephants in the room. Relentless implementation is crucial to the next leg of growth, it said.

The report said the government will complete the third and most eventful year so far of its five-year term. “The good part is, this hasn’t been a two-steps-forward, one-step-back kind of government. Relentless implementation would be crucial because most of the repairs and reforms remain work in progress”, Crisil said.

“Overall, we maintain that the steps taken by the Modi government do not create an immediate and strong upside to growth, but they do improve India’s ability to achieve faster and, importantly, sustainable growth over the medium term”, it added.

Deutsche Bank, Equity Research, Asia said in a recent report that the government is focused more on longer term, bottom-up structural reform than any short term stimulus that shifts the domestic narrative on either corporate earnings or the broader economy. The push for reforms like GST, affordable housing, FDI and other structural reforms and lack of apparent populism has been lapped up by the markets.