The report titled 'India's defining moment' is authored by Nomura India chief economist Sonal Varma and her team and the brokerage's global political analysts Alastair Newton and Craig Chan. The Nomura report describes the ongoing elections as "the most important in many years" for financial markets, and "a make-or-break event for the nation's medium-term prospects".
Blaming the "imprudent" fiscal policy and a lack of supply-side reforms, the report notes that animal spirits are low and the economy is stuck in a stagflation-type situation.
"Hence, the outcomes of these elections are important," it said, as a stable government focused on economic reforms could reinvigorate the dormant animal spirits, ease business uncertainty and address the supply bottlenecks.
A clear mandate can swing investor sentiment significantly as prospects of higher productivity and a revival of the investment cycle boost potential growth, ease supply-side constraints and make room for rate cuts, which may further boost investments. But, it said that "if the election results in a hotchpotch coalition or a third front, it would diminish prospects of structural reforms to revive potential growth and could risk significant capital outflows and monetary policy tightening even further.
"Hence, we see the forthcoming elections as a make-or- break event for the medium-term prospects".
Dion Global Solutions Ltd.