The markets were in a celebratory mode on Thursday as the results have been better than what the markets were initially expecting. So, there was some relief on account of that. That said, the markets corrected a day after they reacted to the exit polls as well. So, irrespective of the final tally, the markets can correct from here on as well. There has been no change in terms of corporate earnings or economic parameters that can take the markets higher, more than the levels they are at now. There should be a mild correction over the next few sessions and then a consolidation phase will set in, albeit with a negative bias.
The government has a tough task at hand. Exports are a worry now. That apart, trade war fears have engulfed the global markets. All these things will start to build momentum and be a concern for the markets. Post the election results, policy-making will centre-stage. The government will have to do something on the recapitalisation of banks. Public sector banks (PSBs) do not have much capital to grow. And if growth – even if it needs to be financed – public sector banks will have a role to play here. This is one thing the government cannot afford to postpone anymore. The government will have to do something to promote and prop-up exports as well. This is an important driver of the economy. As a result, earnings could also expand.
The trade war fears between the US and China that have also impacted the global IT sector as well, offer a window of opportunity for India. Be it manufacturing sector or the IT space, there are ways in which India can gain. The government will have to evolve a strategy to benefit from that. The unemployment problem in India is well-known. So, if the manufacturing shifts from China, this problem can be tackled as well.
I don’t think investors should be in a great hurry to buy at the current market levels. While some stocks may do well in the short-run, investors will be better off to wait and watch for now. The upcoming budget will do a more serious review of the economy and the policies that need to be put in place. The public – private partnership (PPP) model, which is causing a lot of anxiety in the power and infrastructure sectors, needs to be looked into on a priority basis.
Selectively, as and when there is a correction, investors should start to cherry-pick. The government – with the kind of majority that they have now got – is best placed than ever before to address all these economic and policy-related issues.