The NDA victory is likely to sustain investor sentiment , according to Moody’s Investors Service.
However, the global credit rating agency said the impact on the country’s credit profile will only be apparent over the next several months, as economic policy measures are implemented. Future assessments of the sovereign credit profile will depend on developments in the government’s fiscal position; the regulatory constraints on investment and output; and growth in social and physical infrastructure.
Moody’s expects GDP growth to be below potential, at about 5 per cent this year, and the possibility of a sub-par harvest due to El Nino effects poses downside risks.
Expectations that the BJP would win a considerable majority and pursue policies conducive to investment and economic growth contributed to the more than 17 per cent rise in the BSE Sensex in the three months leading up to the announcement of election results.
Foreign portfolio inflows appear to have helped drive the increase in the benchmark equity index, as well as the 4 per cent appreciation of the rupee against the dollar since the beginning of the year. However, economic trends will take longer to improve than sentiment did, the rating agency said.
Economic data published so far this year reveals that industrial output is still weak (it declined by 0.5 per cent on an annual basis in March). Moreover, inflation remains elevated (at 8.6 per cent in April), limiting the scope for monetary stimulus to revive growth.