Indian market surged to record highs as Narendra Modi-led NDA made landslide victory in the Lok Sabha elections. Investors expect policy measures from the new Government to put India on a sustainable high-growth .

The BJP, in its poll manifesto, had promised more business-friendly policies to revive the economy. India's GDP growth has slowed to a decade low of below 5 per cent. The GDP grew 4.7 per cent in the third quarter of December 2013.

Global credit rating agency Fitch Ratings on May 16 said that the new Government must focus on boosting growth by spurring a pick-up in investments, calling this the most important issue from a sovereign credit perspective.

Fitch added that the investment climate can be strengthened by measures including a clear strategy for fiscal consolidation, low inflation and a new push towards structural reforms, including reducing red tape and easing infrastructure bottlenecks.

Challenges galore Now the focus of the investors will shift towards the policy announcements . All eyes will be on how the issues such as CAD, fiscal deficit, high inflation and interest rate be tackled . In a scenario where a below average monsoon is expected due to El Nino, things are not going to be that simple for the Modi Government.

Though the Wholesale Price Index for April eased to 5.2 per cent from 5.7 per cent in March, the Consumer Price index shot up to a three-month high of 5.59 per cent. Coordination between the Government and the Reserve Bank of India (RBI) will be the key for balancing growth with inflation. Amid demand for a rate cut , the RBI’s monetary policy review on June 3 would be keenly watched by the investors along with new Government’s first budget.

Global scenario On the global front, the stock markets are at their record highs and any bad news will shake the investors’ risk appetite. During the week gone by, stock market looked nervous amidst disappointing earnings, weak economic reports and hope that central banks globally will continue to provide loose monetary conditions. Investors across the globe are being seen favouring the haven.In the Euro Zone, investors are worried about the pace of the Euro Zone recovery as their gross domestic product (GDP) grew only 0.2 per cent sequentially, the same rate as seen in the fourth quarter. Also the industrial production dropped in March which has also raised the expectation for the European Central Bank (ECB) to offer stimulus in June.

Meanwhile, in Asia, economic data from Japan continues to show a gradual recovery. Japan’s gross domestic product jumped by an annualised rate of 5.9 per cent in the first quarter of 2014, well above the forecast of 4.2 per cent. Also the growth in industrial production for March was upwardly revised to 0.7 per cent from 0.3 compared to a 2.3 per cent drop in February.

In Indian markets, after the initial euphoria, though the mood continues to be upbeat but indices are in consolidation mode. For investors every dip is an opportunity to enter the stocks from infra cyclical, banking and capital goods sector.

(The writer is CMD, SMC Investments and Advisors Limited)

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