The effect of prime minister Narendra Modi has been intense in the economy and the stock world, leading to heavy gains for the major bourses since last Diwali. The BSE Sensex has gained more than 15% while the National Stock Exchange index (Nifty) has fetched higher returns of nearly 17%.
Will the bullish trend continue heading into the Hindu New Year celebrated as Diwali or the Festival of Lights given demonetization and the introduction of the Goods and Services Tax (GST) that has slowed down economic activity this year? The combination of both factors have compelled both International Monetary Fund (IMF) and World Bank to slash GDP growth forecast for this year to 6.7% and 7%, respectively. Notably, economic growth slipped to a three-year low of 5.7% in April-June quarter.
However, a slew of economic reforms, a rebound in agriculture, a recovery in private investment, growth in corporate earnings, increase in consumption and a fall in interest rates are fueling economic growth and driving stocks higher. Investors should note that FDI is a major source of capital inflows to the country that led to higher stock prices. With foreign exchange reserves of more than $400 billion, India has become the world’s fastest-growing economy and has been the bright spot in the emerging markets’ space.
Further, the optimism and fervor surrounding Diwali and the old belief of ‘Muhurat’ trading are attracting capital inflows to the country. Muhurat trading is the auspicious stock market trading for an hour on the day of Diwali that according to Hindu belief protects individuals from evil and brings prosperity throughout the year. Since Modi took office in May 2014, the Nifty delivered gains in two of the past three years. The index generated 2.6% returns in 2014 and 0.2% in 2016 while slipped 1.6% in 2015.
Ahead of this Diwali, which falls on Oct 19, the major Indian benchmarks the major Indian benchmarks are already up more than 3.5% this month. The positive trend is likely to continue heading into the New Year with more bullish fundamentals.
