INDIA LIVE-Modi has to bring reform, economists say, as coalition heads for runaway win - EntornoInteligente

Entornointeligente.com / May 23 (Reuters) – 0650 GMT: MODI URGED TO INITIATE REFORMS AS COUNTS SHOW HIM HEADED FOR STRONG MAJORITY

Prime Minister Narendra Modi was urged to bring strong reforms in his second term as trends in the counting of votes in the general election showed his Bharatiya Janata Party (BJP)-led alliance winning a landslide majority.

“We are seeing very strong signs that the economy is under pressure, with household income on the decline, and consumer staples, auto and discretionary space under pressure,” said Aishvarya Dadheech, fund manager at Ambit Asset Management in Mumbai.

“When things are so bad, you don’t need an unstable government on top of it – you need someone who can continue reforms and take bold decisions.”

Paras Adenwala at Capital Portfolio Advisors in Mumbai said he expected Modi to “propel demand and facilitate asset creation” in his second term.

“The reforms in the financial sector would continue. Hope they now focus on labour and land reforms too.” Prime Minister Narendra Modi at an election campaign rally in New Delhi earlier in the month. REUTERS/Adnan Abidi

“We need a solid reform process, which is a long-term process, and monetary policy support to shore up liquidity in the system,” said Ritesh Jain, global investor and former CIO at BNP Paribas Asset Management.

“The consumption boom is tapering down, you need an investment boom, and the result of this election (should) at least open up foreign capital to invest in out economy,” Jain said in the Reuters Global Markets Forum chatroom.

“Make in India will not work – India is just too costly a place to produce anything. Ask Vietnam, Ecuador or Bangladesh.”

(Click reut.rs/2VXBoxz to view a graphic showing live updates of India’s elections results).

0645 GMT: STOCKS FALL BACK AFTER HITTING RECORD LEVELS, RUPEE GAINS MUTED

The broad Nifty index reached a record 12,041 points before falling back to 11,843 as of 0645 GMT, while the benchmark BSE index was at 39,453 points after breaching 40,000.

“The thumping victory for BJP as per the early trends surpassing its winning tally of 2014 has pleasantly surprised even the bulls,” said Jagannadham Thunguntla, research head at Centrum Wealth. “The continuation of policies and reforms is an added comfort. Post political outcome, going forward the narrative should come back to employment, economy and earnings.”

The rupee was close to Wednesday’s close of 67.67 to the dollar after gaining to 69.37. Gains were muted because a BJP alliance victory was already priced in.

DBS said the yield on the benchmark 10-year bond was likely to ease to the weaker end of the 7.25%-7.35% range, if results mirrored the exit poll. “On the contrary, weak support for the ruling regime will be construed as a negative risk event, sending yields towards 7.4%,” it said.

Television channels said trends showed the BJP alliance leading in about 340 seats with the main opposition alliance leading in about 90 constituencies. To win, a party needs to win 272 seats in the 543-member lower house of parliament. 0700 GMT: NEW GOVERNMENT HAS TO ADDRESS BANKS, JOBS, INFRASTRUCTURE

Modi is seen most likely to win the election, promising policy continuity, but economists say the task before the new government is immense as growth slows and financial markets clamour for decisive and meaningful reform.

Jobs will define Narendra Modi’s next five years

“We are facing a liquidity and credit crisis – two separate issues which need to be handled differently,” said Rajeev Pawar, group head for balance sheet management and investments at Edelweiss Financial Services in Mumbai.

“Just cutting rates or a new government will not bring rates down,” he said in the Reuters Trading India chatroom.

Arguing for a sovereign bond issue by the government, he said: “Jobs need to be created. Jobs lead to income and consumption. But it’s easier said than done. To revive the economy you need money and the government is already deeply in debt.” Election staff members count votes in Ahmedabad, India. REUTERS/Amit Dave

The Mint newspaper said much needed to be done to convert the enthusiasm in financial markets to the real economy, including addressing faltering consumption.

“The crisis with India’s non-banking financial companies is still unfolding and could put the financial system through more pain,” it added. “Jobs remain worryingly scarce.”

The new government’s priority is likely to be on reforms on land, labour, privatisation and export promotion, Goldman Sachs said.

However, the Control Risks consultancy said: “Do not expect him (Modi) to carry out a wholesale privatisation of state-owned banks or loosen political control over lending decisions (which led to the debt crisis to begin with).

“At the same time, increased pressure over rural distress and unemployment will stoke Modi’s economic populist instincts, which will likely see an increased focus on rural spending and handouts aimed at supporting small and medium-sized enterprises.”

As election dust settles, jobs, trade, security high on government’s to-do list

Raju Gopalakrishnan, Karishma Singh, Savio Shetty and Divya Chowdhury

LINK ORIGINAL: Reuters

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