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Investors are less bullish on the Indian government now than they were last year, when Narendra Modi became the Prime Minister with the largest majority in around three decades.
The Bharatiya Janata Party (BJP) and its allies got 336 out of the 543 Lok Sabha seats, raising hopes of revolutionary reforms. A year later, some believe the sky-high expectations were unrealistic while others feel the recent loss of political momentum might have an impact on the pace of future reforms.
Bank of America Merrill Lynch's 11th May report titled The Modi Government: Reforms Report Card says the market sentiment is not as positive as it once was.
"It has been nearly a year since the Modi government came to power and the stock market seems to be losing a bit of faith in the ability of the Modi government to accelerate reforms. We attribute this partly to unrealistic expectations of investors," said the report authored by research analysts Jyotivardhan Jaipuria and Anand Kumar.
An HDFC Retail Research report, too, noted there has been some disappointment on the reforms front.
"…the tide of national narrative seems to be turning. Despite Modi's stellar achievements in foreign policy, ensuring economic stability, movement towards devolution of financial powers to the states, emphasis on infrastructure development and taming corruption, the public focus has shifted to the agrarian crisis, ghar-wapsi and insensitive remarks made by leaders on women issues. The sudden shift from performance to perception about the nature, composition and intent of the BJP-led government is worrisome," it said.
The hope of stronger reforms is still around, and there is a belief big-ticket reform is likely to be executed soon according to some.
"While the government has initiated a few reforms, markets are expecting more reforms from the government… future re-rating of the markets would depend on the pace of reforms. We continue to believe that the government would likely deliver on both administrative and legislative reforms in the coming quarters," noted the Bank of America report.
Others, however, pointed out the opposition seems to have gained more traction compared to last year.
"With the Congress party sensing an opportunity to corner the BJP government on the land acquisition Bill, Modi will have a tough time passing the crucial legislation in Parliament, and countering the 'anti-poor' and 'anti-farmer' labels from the resurgent opposition," added the HDFC report.
