The Aryavarth Express
Agency (New Delhi): As India’s six-week long national election reaches its final stage, with votes to be counted on June 4, investors are gearing up for Prime Minister Narendra Modi’s widely anticipated third term. Analysts and informal betting markets suggest a narrower margin of victory than initially expected, which could influence market reactions.
Indian equities have outperformed most major markets in 2023, trading at high valuations. A third consecutive term for Modi’s administration is expected to provide a short-term boost due to anticipated policy continuity and political stability. The benchmark BSE Sensex Index has risen 4% this year, and a Reuters poll indicates it could double these gains by year’s end. Foreign investors, who poured a net $20.74 billion into Indian equities last year, have been more cautious in 2023, pulling back ahead of the election.
Fund managers predict short-term volatility if Modi’s margin of victory is lower than expected, while a win for the opposition could lead to a sharper market correction due to policy uncertainty. Mittul Kalawadia, senior equity fund manager at ICICI Prudential Mutual Fund, noted, “The market is looking at continuity, so a coalition government or another party winning is not the expectation. There can be a knee-jerk reaction if the last scenario builds up.”
A third term for Modi would likely mean continuity in policies, including improved fiscal management and currency stability. Ashish Gupta, chief investment officer at Axis Mutual Fund, emphasized, “In the last couple of years, India had a good amount of stability in terms of the current account gap and fiscal discipline, and inflation has been in check.” This stability has reduced India’s risk premium on both debt and equity fronts.
Modi’s administration has focused on transforming India into a manufacturing hub, courting companies like Apple and Tesla to diversify their supply chains beyond China. A clear electoral mandate and a pro-business government are expected to attract foreign investment inflows, according to Vivek Bhutoria, co-portfolio manager at Federated Hermes’ global emerging markets equity fund.
The opposition Congress party has hinted at policies to address income inequalities, raising concerns among investors. Gary Tan, portfolio manager at Allspring Global Investments, expressed a preference for the BJP to avoid over-reliance on welfare schemes, which can stress public finances and disrupt macroeconomic stability. Local media reports have speculated about changes in capital gains tax, but the current administration has denied such plans. Nilesh Shah, CEO of Kotak Mahindra Asset Management, anticipates policies to deepen capital markets rather than changes in capital gains tax.
Fund managers are optimistic about sectors benefiting from the current government’s focus on infrastructure spending and manufacturing. Power, autos, and infrastructure are among the sectors expected to perform well. Sanjay Bembalkar, co-head of equities at Union Asset Management Company, highlighted, “We are constructive on beneficiaries from India’s focus on manufacturing such as capital goods firms, automotives, and metals.”
As India awaits the election results, investors are poised for a potential boost in key sectors and overall market stability, driven by expectations of continued policy support under Modi’s leadership.
