Don’t Count On Euphoria Alone

  • Stock markets have a tendency to exaggerate during elections. The stock markets crossed the 25000 mark in the recent elections and has surged the already sky-high expectations from the new government.
  • Optimistic scenario in the face of a stable govt includes:
    • Swift economic reforms that result in quick changes in the economy.
    • Debottling stalled infrastructure projects.
    • Initiation of the next capex cycle.
    • Cutting down of rates by the RBI.
  • Reality:
    • One fourth of the delay in projects is due to the centre, the rest is mainly due to the states.
    • Resolution of delayed environmental clearances and legal bottlenecks will take longer than what the stock markets anticipate.
    • Cumbersome land acquisition process will increase project costs.
    • Existing political vacuum will need time for correction.
    • Future of FDI appears hazy.

Exams Perspective:

  1. Stock Market
  2. RBI