Impact of the BJP led NDA Government for Stable Coalition on Indian Stock Market
GDP Growth Recovers: We think growth will gradually recover (a) a stable government improves consumer and business confidence
(b) global growth recovers led by a US recovery (c) a stable rupee and falling interest rate provides room to cut rates and (d) the Government is able to accelerate reforms
Rupee appreciates: We expect US$25bn of portfolio flows to put appreciation pressure on the INR to Rs57-58/USD. At the same time, we expect it to settle round Rs60/USD levels as the RBI is likely to buy to recoup FX to push up import cover from 7.5-8 months to the 10 months needed for INR stability
Interest rates fall: We are building in a 50-75 bps RBI rate cut by end- FY15 with a stable INR limiting imported inflation pressure.
Markets rally 5-10%: Markets are likely discounting a stable coalition. However, we still see a further rally in the next few months as reform expectations build up. We believe most of the rally will be led by valuation re-rating as market anticipates a turn in the economic cycle
