The Indian electorate brought back the incumbent government with a thumping majority in the 2019 General Elections.
![Election Hangover Over, Back To Fundamentals](https://magarticles.magzter.com/articles/2829/360731/5d35b5154837a/Election-Hangover-Over-Back-to-Fundamentals.jpg)
The following are the key positives of this mandate for the markets
1. A major uncertainty or potential negative (of a coalition government) is behind us
2. Continuing focus on infrastructure spend, fiscal discipline, GST rationalization and fine tuning of Bankruptcy Code.
3. New focus on areas like boosting credit flow, private investments and jobs creation.
2019 was expected to be a year of two halves for equity investors. The first half was to be driven by election results and the second half by a recovery in earnings. While the first half has played out better than expected, markets will be keenly waiting for early signs of an earnings recovery in the second half, without which, the present valuations may not sustain.
The focus should now shift back to fundamentals. In the long term, equity markets are slaves to earnings growth. However, corporate earnings growth has simply not kept pace over the last decade, neither with nominal GDP growth - corporate profit to GDP has fallen to a 15 year low of 2.8% - nor with prices, leading to expensive valuations. The last six years have seen the macro economy getting repaired and strengthened as Current Account & Fiscal Deficits narrowed, inflation fell and stayed below 4%, real interest rates turned positive and foreign currency reserves soared.
Though this macro repair has weakened the micro economy (read corporate earnings) as expected, it has nonetheless provided a strong foundation for a revival in earnings growth in future, using a combination of an accommodative monetary policy and an expansionary fiscal policy.
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Esta historia es de la edición June 2019 de Investors India.
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