Emerging Markets

India's Modi Re-Elected With Bigger Majority - Reactions

Tom Burroughes Group Editor Singapore 27 May 2019

India's Modi Re-Elected With Bigger Majority - Reactions

Following results of the world's largest democracy last week, wealth managers ruminate on what's next for India and its economy.

India is the world’s largest democracy in terms of voters – around 900 million registered electors – and, as one of the largest emerging market countries, its governance matters. The existing administration led by Narendra Modi and his Bharatiya Janata Party won a majority of seats. Modi has already embarked on a series of reforms, such as moving against the underground economy, and he has another five years in office if he serves the full term. 

India is still in some ways relatively closed to outside private banks and wealth management firms, but the situation is changing. The rise of a large, growing and affluent middle class is significant for the country’s wealth management sector and internationally. 

After weeks of counting results (across no fewer than 543 constituencies), and the results declared, here are reactions from wealth and asset managers.

Avinash Vazirani, who manages the Jupiter India Fund
This is a significantly positive outcome for India as there will be continuity in governance for the country, as well as the continuation of further economic reforms. It is worth noting that the BJP has won over 300 seats, more than the 282 seats they won in the 2014 general election, and the BJP has made inroads into several states that were previously strongholds for other parties (for example, West Bengal). BJP’s vote share has gone from 31 per cent of the electorate in 2014 to over 41 per cent in 2019 – this is an unprecedented gain in vote share in India. We think this is a clear indication that the average man on the street has taken Modi’s reforms positively so far, despite massive disruption from big changes such as “demonetisation” (when 86 per cent of cash by value was taken out of the system) and the introduction of a pan-India Goods & Services Tax (GST).

We believe that Modi’s government will continue to focus on good governance and will double down on reforms from here. It is evident that there is little opposition to the BJP at a state or central government level, which we think means that Modi will be able to fulfil a lot of the unfulfilled expectations from his last term. We expect that the government will start implementing changes quickly from here, delivering on major structural changes to the land and labour laws, and also focusing on housing, infrastructure, and pulling people out of poverty.

While we expect India as a whole to benefit from these reforms, in particular, we think companies relating to financial inclusion, middle class consumption and infrastructure will be positively impacted. Given that this government has been fiscally prudent and has stated its intention to remain so, we think that they could fund some of these reforms by selling off government-owned assets, so public sector companies could also stand to benefit - in particular public sector banks, where there is already talk of consolidation and sell-offs.

White Oak Capital Management, the investment advisor to the Ashoka India Equity Investment Trust
The strong decisive mandate by Indian citizens to the NDA government will ensure continuity of the existing reforms process and also embolden PM Narendra Modi to accelerate India's transformation into a more market oriented economy. It is India's opportunity to dismantle its archaic laws, carry out major structural reforms, further improve the ease of doing business and free up resources from inefficient public enterprises to aggressively invest in both infrastructure and human resources. 

An environment conducive to enterprise will improve the dynamism of the economy, create jobs, accelerate growth and, in the process, will also be rewarding for investors.

David Cornell, managing director and chief investment officer of Ocean Dial
The re-election of Narendra Modi reignites the investment case for India. We anticipate that reform based policy initiatives (such as the Banking & Insolvency Act and Goods & Services Tax) will gather momentum as the focus switches to creating productive employment and ensuring that India continues on a more business and investment friendly journey.

Sukumar Rajah, senior managing director at Franklin Templeton Emerging Markets Equity
After months on the campaign trail, Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) has emerged victorious from the country’s general election to secure his second term as prime minister. Once again, the BJP secured an outright majority in India’s parliament.

We expect positive market reaction to be mostly limited, as the BJP victory seemed largely priced in. Although we believe some obstacles remain on the pathway to the economic reforms Modi has promised, we think he’ll push for policy continuity with his initiatives. We expect the BJP to work towards its election promises once the dust settles in New Delhi. Modi’s manifesto included a $1.44 trillion boost to infrastructure, a $10.5 billion cash injection into the farming industry. He pledged to double farmers’ incomes by 2022, in response to growing anger from farmers over low crop prices, which had a detrimental impact.

He also unveiled plans to continue to simplify the Goods and Services Tax (GST), remove certain products from the list of items subject to the higher tax rate of 28 per cent, and to increase investment in infrastructure, which could introduce new jobs. In our view, policies implemented during his last administration are established enough to withstand any potential short-term challenges. We think this election result could help the economy remain on a path of fiscal stability.

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