Equity benchmarks Sensex and Nifty hit fresh record highs on Thursday after the trends suggest that Narendra Modi-led National Democratic Alliance (NDA) set to win majority seats in the 2019 Lok Sabha elections. Nifty hit 12,000-mark and Sensex crossed 40,000 intraday for the first time ever.

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However, post the election results, the focus will shift to the recent slowdown in consumption, liquidity tightness, fiscal balance, and global risks among others.

“Once the new government gets sworn in the focus needs to shift to improving the investment climate so that the GDP growth rate is sustained above 7.5 percent," said Abhimanyu Sofat, head of research at IIFL Securities.

Morgan Stanley said that it expects concerted efforts on the part of the Central Bank and the government to redress some investor concerns like ongoing liquidity tightness and reducing real rates.

"Higher real rates could be a problem for profits as they cause household saving to increase and consumption growth to slow," they added.

Meanwhile, according to DBS, subdued sentiments in the domestic credit markets are likely to take precedence for the central bank, but respite is not in the offing as the RBI dismissed the need for a dedicated credit line to struggling entities, where problems are seen as solvency driven, rather than due to a shortage of liquidity," it added.

Indian markets will be vulnerable to global markets with a limited ability to withstand the rise in oil prices, which can have a negative impact on the economic fundamentals of the country. Re-escalation in US-China trade tensions and its impact on global growth will also be a downside for the domestic markets.

"A slowdown in global growth could be tolerated – but a recession is not something that profits in India would be able to withstand," Morgan Stanley added.

Madan Sabnavis, Chief Economist at Care Ratings is of the view that the immediate challenges (for Modi's government) will be to address employment, the issue of agricultural income and revive the banking sector. Jagannadham Thunuguntla, research head at Centrum Wealth also believes that the narrative should come back to employment, economy, and earnings.

However, Arvind Mayaram, Former Finance Secretary cautions investors, saying that the global headwinds are gathering and internally fundamentals of the economy are weak, so unless there is a major paradigm shift in designing economic policies, the country's economy will run into very rough weather.

Ritesh Jain, former CIO at BNP Paribas Asset Management also believes that the country needs a reform process and monetary policy to shore up liquidity.

First Published:May 23, 2019 2:22 PM IST