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MOSL: INDIA STRATEGY-Taking stock of three years of MODIfied regime-Macroeconomic stability defining feature

India Strategy: Taking stock of three years of MODIfied regime; Macroeconomic stability defining feature; earnings revival critical

As the NDA government led by Mr. Narendra Modi completes three years in office, we step back and take a look at the key highlights of the last three years from the markets and economy perspective.

Macroeconomic stability defining feature of first three years of NDA regime

The defining feature of the Indian economy over May 2014 - May 2017 has been the achievement of macroeconomic stability. Taming of inflation (supported by benign crude oil prices) coupled with controlled twin deficits – both fiscal as well as current account deficits – and stable currency are the key achievements of the past three years, in our view. This has provided a resilient backdrop for foreign capital inflows to the Indian economy (reflected in the highest-ever FDI inflows). The stable macroeconomic backdrop augurs well from the “growth-inflation” perspective.

Flood of reforms in three years

In the last three years, the government has implemented / initiated several important reforms. Goods & Services Tax (GST), easing of FDI limits in various sectors, Direct Benefit Transfer (subsidy reforms), Financial Inclusion and Digitization, Make in India, Ujjwala Yojana, and Uday Scheme for Power sector are some of its signature initiatives, in our view. The common thread running across reforms like GST and Demonetization seems to be a thrust towards formalization of the economy and enhancement of tax base. Demonetization has also resulted in a deluge of liquidity in the system, driving interest rates lower. There has been considerable change in the fortunes of few important sectors like Oil & Gas and Power. We have highlighted various initiatives across Infrastructure, Oil & Gas and Power sectors inside the note.