New Delhi [India], June 6 : Motilal Oswal Financial Services says that the policy agenda of Modi 2.0 will continue in Modi 3.0. The coalition government or weakened majority of the BJP is unlikely to slow down major reforms.
According to the report, the new government may sweeten the deal by providing relief in taxation and rationalizing the GST structure.
Policy decisions of the previous term, with regard to attracting investments, increased capital expenditure, and focus on infrastructure creation and manufacturing, are expected to continue in the new regime.
The report also suggests that considering the nature of the verdict, the government might take some populist measures to address rural distress and boost sentiments. Measures aimed to revive consumption at the bottom of the economic pyramid may also be taken.
Financially, the government has the support due to a higher-than-expected RBI dividend, recent moderation in Brent crude prices, record GST and tax collections
In the stock market, the report notes that after a period of overheated valuations and sharp outperformance, sectors such as Industrials, Railways, Defence, and PSUs might experience valuation moderation before they become attractive from a risk-reward perspective again.
Despite these shifts, the broader fiscal discipline is expected to be maintained. Long-term priorities, such as renewable energy investments, power sector developments, and the Production-Linked Incentive (PLI) scheme, are likely to continue.
In the immediate term, the market is anticipated to focus on the government formation process, paying particular attention to key cabinet portfolios including Finance, Defence, Roads, Energy, Commerce, and Railways.
The government and policymakers are upbeat with the GDP growth of 8.2 per cent in FY24, and projection of 7 per cent growth in FY25. Inflation is expected to be around 5 per cent, with both current account and fiscal deficits within manageable limits and a stable currency.
Corporate earnings are solid, with the Nifty ending FY24 with a 25 per cent earnings growth. Earnings for FY25/26 are likely to grow at a compound annual growth rate (CAGR) of 14-15 per cent, and valuations are projected at about 20 times one-year forward earnings.
The focus will now shift back to the fundamentals of the economy, bottom-up stock picking. India's strong economic indicators and the continuity of key policy initiatives will continue to attract investments.
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