Government expenditure is likely to accelerate over the next two years and the Indian equity markets are expected to outperform its emerging market peers driven by pro-growth government policies, says a report.
According to Deutsche Bank's India Equity Strategy Report, the final two years of every national government since the Narasimha Rao administration in 1991, have thrown up some very distinct trends for equity markets, domestic economy sectors and the industrials /capital goods sector.
Three stand out similarities are seen over the final two years of every political administration. First, there is a rise in government expenditure led by capital expenditure.
Second, pro-growth government focus has led to Indian equity markets outperforming emerging markets and third, capex-linked sectors and consumer cyclicals tend to outperform the most.
"Given the consistency, it is highly probable that we will see the trends seen in past terms play out similarly over the next two years," Deutsche Bank said in a research note.
On May 25, the BJP government at the Centre will complete three years in office and enter the final two-year period of its term.
"While the current administration headed by Prime Minister Narendra Modi is distinct from the past four national governments, by virtue of this being the first majority government in more than two decades, it still faces a minority status in the upper house of Parliament," Deutsche Bank said in the research note.
Moreover, parliamentary processes, administrative approvals and bureaucratic decision-making also follow a set procedure and practice which is a sequential and well layered process.
The report noted that pro-growth policies and expeditious execution tend to help India's relative performance as against its peer group.
"MSCI India has consistently outperformed the broader MSCI EM index over the last two years of each of past three governments," it said.
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