The past two weeks have been pivotal for the Indian economy, marked by robust earnings and impressive GDP growth.
As the nation awaits the election results on June 4 and the Reserve Bank of India's (RBI) decision on interest rates on June 7, economic stakeholders are keenly watching for signs of continuity and stability.
While election outcomes may not directly affect the economy, the likelihood of the NDA Government, led by the BJP, retaining powe has significant implications for policy continuity.
Analysts believe this could ensure the sustained momentum of India’s GDP growth, which currently stands at a promising 8.2% for FY24.
A report by Motilal Oswal highlights the potential positive impact of a BJP victory on the economy and capital markets. "The victory of PM Modi/BJP augurs well for the economy and capital markets as it provides stability and continuity in policymaking with a single-party majority government, which will be expected to continue pushing its economic agenda," the report stated.
It noted that India's economic indicators are currently favorable, with manageable inflation, stable currency, and solid corporate earnings.
Garima Kapoor, Senior Vice President and Economist at Elara Securities, maintains a growth projection of 7% for FY25.
She emphasized the significance of the upcoming budget in July 2024, which is expected to outline a 100-day plan offering further policy clarity. Kapoor points out that strong government capital investment is crowding in private investments, which could further enhance economic growth.
However, concerns remain, particularly regarding the recent contraction in exports by 7.7% year-on-year.
Economist Rumki Majumdar from Deloitte India acknowledged this decline but notes that the continued strength in electronics exports is a positive sign.
She attributed the growth in the services sector to robust performance in financial, real estate, and business services.
Attention have now turned to the RBI, as the Monetary Policy Committee begins its quarterly meeting on June 5, just a day after the election results.
Experts are closely monitoring the RBI's stance on interest rates and inflation expectations. Kapoor warns of potential risks to India's growth outlook due to global economic slowdowns and geopolitical tensions, suggesting that a rate cut cycle in India may not commence before the last quarter of FY25.
The private capital expenditure (capex) cycle is also under scrutiny. The prolonged election process has moderated capex activities, but a post-election pickup is anticipated, supported by increased GST collections and surplus dividends from the RBI.
Analysts believe this could ensure the sustained momentum of India’s GDP growth, which currently stands at a promising 8.2% for FY24.
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