India’s key benchmark indices logged their best session in over three years on Monday after exit polls predicted that Narendra Modi is all set to secure a third consecutive term as Indian Prime Minister. In a strong reaction to the developments happening in the country’s political landscape, the Indian equity market experienced a bullish trend, where NSE Nifty 50 closed 3.25%, higher, and the BSE Sensex gained 3.39%, with PSU banking stocks touching new record high levels, reflecting faith in the Modi government. Meanwhile, there is a reason for India’s micro, small, and medium enterprises (MSMEs) to cheer the exit polls as they expect improved ease of doing business under Modi 3.0.
This week is going to be a crucial one for the Indian financial market as following the announcement of the Lok Sabha Election Results 2024, the RBI will announce its decision on interest rates on June 7. According to analysts at Motilal Oswal, PM Modi’s victory bodes well for the economy and capital markets as it offers stability and consistency in policymaking with a one-party majority government, which is expected to continue supporting its economic agenda.
Why are MSMEs optimistic about Modi’s win?
The Modi government has been active in resolving numerous issues faced by the MSME sector in the country. MSMEs believe that if the BJP government comes back to power they will probably get timely and adequate finance at reasonable rates from the formal sector.
When it comes to timely payments, in her 2023 budget announcement, the Finance Minister talked about the 45-day payment rule where it is mandatory for buyers to pay pending payments to MSMEs within 45 days of receiving the order.
In addition, it is also believed that a uniform GST, boost to the PLI scheme will also support the MSME sector. There are anticipations that Modi’s third term will focus on improving the business environment for SMEs through comprehensive reforms with a key focus on infrastructure development, local manufacturing, and advanced technology. The government increased the outlay for Production Linked Incentive Scheme (PLI) BY 33.48% to Rs 6,200 crore for FY25 and the allocation for the Modified Programme for Development of Semiconductors and Display Manufacturing Ecosystem was hiked by 130% to Rs 6,903 crore for FY25.
Since SMEs have high employment elasticity, this increased allocation is also expected to boost employment in the country.
According to market experts, apart from MSMEs, the key sectors that will benefit from BJP’s win include infrastructure, defense, industrials, Capital goods, and automobiles.
RBI policy rate decision on June 7:
The Reserve Bank of India’s Monetary Policy Committee (MPC) meeting is set to begin on June 5. The central bank will announce its decision on key rates on June 7. Thus, two other important data outcomes that will impact investors’ mood this week include inflation expectations from the RBI meet, and its stance on interest rates.
