(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.

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)

©2024 Bloomberg L.P.