Prime Minister Narendra Modi has returned for another term with a strong mandate. Stock markets skyrocketed on the counting day. BSE Sensex and NSE Nifty breached record levels of 40,000 and 12,000 points, respectively.
Both Sensex and Nifty retracted as investors booked their profits and the formation of a stable government is good news. Stock markets play better when there is a strong government at the centre, which is free of all sorts of conundrums.
Investors don’t have to worry about political instability, which affects stock markets. With a stable government, investors can invest with a long term horizon. When stock markets rise, they attract foreign investors.
Sensex closed the week below 40,000 points while Nifty under 12,000 points, we can expect them to breach their respective barriers over the next few days. These are physiological levels and investors generally book their profits once they are violated. This makes stock prices go down.
Volatility is part and parcel of stock markets. Indices such as Nifty and Sensex majorly factored Lok Sabha elections. They go back to normal when there are changes in economic policies, inflation rates, and market sentiment.
What are investors expecting from Modi 2.0?
Investors are looking at the government to rectify inconsistency in the taxation of various asset classes. Equity investments are considered long term at 12 months, while real estate at 24 months and debt instruments at 36 months.
Tax rules on switching investments are quite unexplainable. Switching real estate under 24 months is tax-free, while mutual funds are not. The investors are expecting this arbitrage in tax rules to go.
The Indian economy is facing a liquidity crunch. The real estate sector and non-banking financial companies are badly hit due to this.
Real estate accounts for 6% in the GDP and employs about 18% of the Indian workforce. Moreover, it supports around 350 industries across the country.
As per the Reserve Bank of India’s (RBI) assessment, non-banking financial companies (NBFCs) account for 17% of the outstanding loans. Considering these staggering numbers of real estate sector and NBFCs, it is important to make suitable policies to eradicate the liquidity crunch.
We can expect the Modi led government to act accordingly and meet the expectations of investors. It is imperative that the government frames suitable policies as the Indian economy is well poised for a quick turn around of things.