During Narendra Modi's tenure as Prime Minister, India's stock market has seen a significant premium over its emerging market counterparts. With Modi vying for a third term, the financial community anticipates this trend to persist.
Anticipating Modi's victory, there is an expectation of increased expenditure on manufacturing and infrastructure, a continuation of the policies that attracted investors throughout his governance. This approach has propelled the stock market to new heights, alongside the anticipation of India joining a major global bond index, which is expected to attract substantial foreign investments.
Financial experts, including Andrei Stetsenko from Farley Capital, highlight a pro-growth stance supported by the electorate, noting a positive shift in the business environment compared to a decade ago, with company managements feeling more supported by the government.
Modi's decade-long leadership has brought political stability and consistent policies, mitigating extreme market fluctuations and positioning India as a top choice for international investors. The phased election process commencing on April 19 will test Modi's ability to secure a commanding majority, crucial for maintaining his reform agenda amid challenges such as unemployment and inflation concerns.
In the 2019 elections, Modi's alliance secured a dominant position in Parliament, which was instrumental in implementing his policies. The upcoming election results, particularly the seat count predicted to exceed 400 for Modi's party and its allies, will be pivotal in determining the continuation of these policies.
Mike Sell from Alquity Investment Management Ltd. regards Modi's tenure as a period of unlocking India's potential, emphasizing the preference for a majority government for its stability and clear policy direction over a fragmented coalition.
Under Modi's governance, the premium for owning Indian stocks compared to other emerging markets surged, contrasting with China's median discount, reflecting the diverging paths of the two major emerging economies. Despite a less dramatic increase in the MSCI India Index compared to the previous decade, investor confidence has been bolstered, with reduced volatility across asset classes indicating a strong downside protection in Indian markets.
The Indian rupee's gradual depreciation has been accompanied by reduced volatility, making it attractive for carry trade, thanks to the central bank's tight control. This stability, along with the positive performance of India's sovereign bonds, enhances the country's appeal to foreign investors, especially in light of its expected inclusion in global bond indexes.
Experts from Macquarie Group Ltd. suggest that India is set to continue its exceptional trajectory, characterized by lower inflation, stable growth, and reduced risk premiums, defying the common setbacks faced by emerging markets.
