Markets will not be affected by the short-term volatility created by election results and new government

As the new government takes power after a long election season, there is considerable debate on the effect of the election results and the new government on the markets.

In this context, Mirae Asset MF has recently released a report on the possible impact of the newly formed coalition government on different segments of the market. Here are the key highlights of this report:

Effect on equity market

• The equity inflows from mutual funds, SIP, insurance, NPS and PMS are likely to be steady and over the medium term, India will have robust growth
• The valuation of the Nifty 50 index is reasonable. The earnings growth is broad-based across sufficient number of stocks and will provide better certainty
• Certain sectors among industrials are trading at a premium. A reversion to mean is expected in them

Effects on various sectors

• Consumption, specialty chemicals and private lending sectors might see growth
• SME (Small & Medium Enterprises) IPOs will grow due to the increase in demat accounts post-COVID
• Government and private lenders may continue to do well
• Valuation of the IT sector is reasonable
• The outlook on industrials and infrastructure sector is positive. However, their valuations are expensive
• Opportunities in pockets of capital goods

Effect on debt markets

• The government is unlikely to change its stance on fiscal consolidation
• There may be a change in the pattern of spending based on the national demand. Generally, the government will continue its policies to provide comfort to the markets
• The supply-demand dynamic for the bond market is still very favorable. Inflation and policy rates may come down  
• The current state of higher yields can be an attractive opportunity

Overall impact

• Markets will not be affected by the short-term volatility created by the elections and the new government
• The policies of the government will determine the long-term fate of the market
• Other global and political factors and additional factors like technological advances may play critical role in shaping the performance of the markets