_{"Government is one of the most critical cogs in the functioning of the Economy. From impacting the monetary and fiscal structure to large scale trade deals, its impact is enormous for the functioning of Economy and businesses in that Economy."}

Investing in the stock market is investing in the future of businesses. Therefore rather than seeing how businesses and their prospects are affected by government stability or change will help us understand why a stable government in the center is one of the most positive signs for the Stock market.

There are several reasons for the stock market preferring the stable government, and we will discuss each point for a detailed and elaborate understanding.

As a Buyer and Seller of Goods and Services – Government expenditure is an essential part of Total GDP. The services like the making of roads, expressways, Highways, Railways lines, Airports, etc., Constitutes an integral part of a country's total output, and these order and significant sources of revenue for many firms in the field like infrastructure. Change in government changes plans for current projects and ChangeChange and extent the timeline for any projects under development. Therefore the output from the government side is hugely impacted by the change in government impacting the business potential for some firms and directly affecting many PSUs.

Stable Monetary Policy

Monetary policy plays a vital role in determining the level of household demand ( the largest factor for a country's output). Monetary policy determines the amount of cash in the Economy and consequently affecting the price levels of most of the commodities. It also determines the interest rate and borrowing rate prevalent in the Economy, determines, to a large extent, the level and scale of business activities possible in the Economy and ease of doing and expanding business. 

The level of money supply, inflation, and Interest rates affect the overall scenario of consumer and corporate demand for the goods and services produced by different companies. Change in government quite often comes with a change in monetary policy as each government comes with its strategy. It leads to a lot of instability in business functioning as business plans are made considering current situations, and frequent change causes a lot of difficulties, affecting business potential, and consequently, the stock market.

Stable Fiscal Policy

Fiscal policy plays a vital role in determining the taxation and spending outlook of any government. Taxation, both corporate and income tax can play a huge role in deciding both supply and demand factors for National Output (GDP). Change in Income tax structure affects the disposable income that people can spend affecting the total demand, and the corporate tax structure affects the profitability and even the sustainability of the business. 

In addition to its change in other tax reforms like Increasing the GST rate on certain items also affects business prospects and the impact can be seen in the stock market. It also affects the debt, and the fiscal deficit government is taking affecting the entire demand scenario for the businesses.

Foreign Trade diplomacy

Each government has its way of tackling different situations, especially when it comes to international diplomacy. These couples with trade deals like Bilateral agreements, Free trade agreements, access to growing markets, anti-dumping duty on certain products, tariffs, trade wars, and entry barriers vastly affect the business scenario in a country. These affect not only businesses depending mainly on exports but also affects nearly every business by regulating the import of raw material as well. These changed the scenario of existing competition from foreign players and profit margins as well. 

Therefore stable government provides a common way for business to strategies and take actions in a direction that gives stability to the company and a positive outlook for stock markets.

Other Factors

Along with all these, the general perception and inclination of government towards business growth, their ability to handle problems, and eagerness to solve problems for business make a great difference for eg. Building special SEZs, trade corridors, policy changes like IBC law, environmental norms, promotion of renewable energy, Electric Vehicles, etc. vastly affect business scenarios for many industries in quite different ways.

Rapid ChangeChange in these factors cause a lot of strategic changes, and compliance and business spend more time focusing on them rather than planning growth. It can also change the entire business scenario for some industries.

Therefore due to uniformity in decision making, business approach, policy framework, international trade relations, and business prospects, stable government is taken as a huge positive for the Stock market due to long-lasting stable strategic and growth framework for the businesses.