Share Market Highlights June 05, 2024: Sensex, Nifty settle 3% higher amid broad-based buying on hope of political stability; metal, banking stocks shine; most Adani group stocks gain

June 05, 2024 09:08

Two key debates from the election outcome:

* Will the pace/direction of reforms slow/change? Our view is that this is

unlikely. Most of the likely reforms in the coming five years are in the arena

of execution rather than law changes.

* Will the focus on macro stability (which has driven down inflation and

asset market volatility) that has informed government policy change? The

details of the results are still to be analyzed, but the prima facie evidence

suggests that the BJP’s near 60-seat loss from 2019 is largely down to local

and non-economic issues. Thus. our base case is that the BJP-led NDA

government is unlikely to sacrifice macro stability as its anchor to economic

policy.

Key events to watch:

* Government and cabinet formation over the next few days.

* The RBI policy on June 7 – we expect no change in policy rate. Liquidity

conditions should improve as government spending resumes after elections.

* The onset of the monsoons – rains are expected to be above average.

* The budget which is likely in early July: The interim budget pegged the deficit

at 5.1% with capital spending growth exceeding social expenditure. Since

then, the actual trailing deficit was 20bps lower than estimate and the RBI

dividend cheque has added about 30bps to revenues. How the government

uses this extra 50bps plus the final estimate for the deficit will be key

information. In our base case, we do not expect an increase in populist

spending.

* The earnings season starts in the second week of July.