Analysts Welcome Modi’s Faith in Sitharaman as Finance Chief

(Bloomberg) -- Indian Prime Minister Narendra Modi’s decision to reappoint Nirmala Sitharaman as the country’s finance minister is being seen by market analysts as a strong signal of policy continuity.

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Modi’s new cabinet has seen the return of several old faces from his earlier administration. For Sitharaman, one key challenge will be to balance fiscal demands in a coalition government after the ruling Bharatiya Janata Party failed to win a majority in the elections.

India’s NSE Nifty 50 Index were set for a for a fresh record close, and the shares of railway wagon makers extended gains, on news of the railway minister’s reappointment. Debt investors cheered Sitharaman getting another stint in office, considering it a sign of fiscal conservatism. The ten-year bond yield declined the most since late last week.

Here are some comments from market participants on India’s key ministerial allocations:

Goldman Sachs Group Inc.

• “We expect the new government to stick to the fiscal consolidation path with a continued thrust on infrastructure creation through more rail network, amidst a slight tilt towards more rural spending,” economists including Santanu Sengupta wrote

• Modi’s party kept 25 out of 30 cabinet appointments while leaving five cabinet seats for coalition partners

Bandhan Asset Management

• The “bond market should draw comfort from this,” Suyash Choudhary, head of fixed income, said

• “The structural view remains intact, but near term bond yield movement is a function of various other things as well, for instance, US CPI and Fed meeting coming up”

Nomura Holdings Inc.

• “Investors were very fearful of the compromises the BJP would have to make” after being forced to form a coalition government,” Sonal Varma, an economist, said

• With Sitharaman’s reappointment, the focus on infra and continued fiscal consolidation should also continue

• While Andhra Pradesh and Bihar may get financial support, this will probably be done “without compromising on fiscal consolidation”

Barclays PLC

• “With most ministries, including the top four, unchanged, we expect policy continuity,” Shreya Sodhani, vice president for global research, wrote

• Sodhani said that investor focus will now move to the budget in July where she sees the fiscal deficit target for the financial year ending March retained at 5.1%

AU Small Finance Bank

• “The government should put emphasis on job creation,” said Debendra Dash, a fixed income trader

• With fiscal consolidation in place and the country’s bonds due to be included in JPMorgan Chase & Co. indexes, “yields will come down”

--With assistance from Chiranjivi Chakraborty.

(Updates with market reaction, Bandhan AMC, AU Small Finance Bank)

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