It can be seen that the market is going up continuously after the election results. It’s rising even after BJP lost the elections.
According news and reports by various sources, the markets were supposed to react negatively and go down if BJP loses.
Today NIFTY has reached almost around 10,900. What are the reasons behind this? Is there something that the markets can see, and we cannot?
Let’s have a look at Why Stock Markets are going up?
Governments Stand After the Elections
The government will become more cautious after the poor performance in the current elections. This mean that the government will be active till the next elections and this will in turn lead to higher spending from the government’s side. Increased spending means increased economic activities.
Because of this it can be noted that the 2-wheeler auto stocks, 4-wheeler auto stocks, FMCG stocks and consumption stocks have experienced major rallies. And this is one of the reasons behind the market going up.
New RBI Governor
Recently, Mr. Urjit Patel resigned stating personal reason from the post of RBI governor. On 11th December 2018, Who is the New RBI Governor has been appointed as the new RBI Governor.
In the latest press conference, Who is the New RBI Governor said that RBI’s first priority is going to be economical growth, and not inflation. The previous governors used have Inflation has as their first target. But this does not mean that he thinks inflation is not priority, it’s just that he thinks currently the inflation is quite controlled. The current CPI number released is 2.33%. This CPI will be quite encouraging to the RBI for rate cuttings. Also, it doesn’t seem that this interest rate will go above 4% before June 2019. Hence, this is a very positive sign.
Moreover, IIP numbers of the economic activities to have been released. These numbers too are very positive. The October results are showing a growth of 8.1% in IIP numbers.
As this a good momentum, the government and the RBI wouldn’t want it to break. Along with the economic growth as the priority, the calibrated tightening stand of RBI is good for the economy. In calibrated tightening, RBI may either maintain the interest rates or increase them but not decrease them. But according to the current scenario RBI may soon shift their stand to a neutral one. In neutral stand, they may even make the rate cuts. The next meet on the rates is in February 2019. But is should be noted, there can be many actions during the period up to the next meet. Though there wouldn’t be any direct linking to the Repo rate, but many actions can happen from RBI’s side.
The new RBI governor is going to meet with the Chairmen’s and MD’s of all the PSU banks across the country. Thus, many actions can be expected to be taken in the coming weeks and months.
The situation in the crude oil area has been eased out a little. The crude oil will probably settle down between 60 to 65 dollar per barrel.
Inflation has eased out even more and has become lower than RBI’s benchmark. If RBI takes immediate actions, and the interest rates are reduced, immediately positive impact could be seen on the businesses. If the interest portion payouts are less, the EMI’s of the loans are reduced then automatically the profitability will increase.
- When spending increases, other factors such as credit growth, loans will too increase. And this mean that the economic cycle will automatically revive.
- All the things happening in RBI currently is pushing market towards the positive. The next one or two quarter(s) is going to be action-packed. From this point the market can see a lot of positive.
- From this point, Small-Cap, Mid-Cap or NBFC sectors can see notable revivals. It does not mean that investment in these sectors should be made immediately. But, stocks with a good corporate governance can be looked out for.
- Investors can start building their portfolios right now as this a very good time to do so.