Shashank Savla

The early take on Indian elections

Shashank Savla

The early take on Indian elections

The Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, is expected to return even stronger after the recent national elections. At the time of writing, the BJP is leading in around 300 of the 543 seats with its coalition National Democratic Alliance (NDA) leading in close to 350 seats. This is a much stronger result than even 2014, which was the first time that a single party had won a majority after 30 years of coalition governments.  It is also significantly better than pre-election opinion poll predictions of a hung parliament.

As we mentioned in our election preview note, Modi’s record over the past five years has been mostly positive. We expect him to continue to push through reforms, which should boost India’s medium term growth outlook. Apart from the majority in the Lok Sabha (Lower House), Modi will also benefit from an increase in seats in the Rajya Sabha (Upper House), where his alliance now controls 101 out of 245 seats.

While Modi is expected to continue with infrastructure spending and supportive measures for the housing sector, what could really unlock India’s growth potential is if he could go ahead with land reforms. Restrictive and time consuming land acquisition policies hamper the ability to invest in significant infrastructure projects. Apart from land acquisition, restrictive labour policies also impede the setting up of large-scale manufacturing plants. While both land and labour reforms have always been politically difficult to achieve, especially given the history of weak coalition governments, they are necessary to create the millions of jobs that Modi has promised.

The Indian market index (Nifty) rose more than 2.5% today after preliminary results were announced, but ended the day 0.5% below yesterday’s close, falling alongside other Asian markets. We remain slightly underweight India in the Liontrust Asia Income Fund, primarily due to the expensive valuations, where India at a forward price/earnings ratio of 18x is at a significant premium to 13x for the wider Asian region. India’s current valuations discount a lot of positives in our view, and leave little room for any failure in execution.

For a comprehensive list of common financial words and terms, see our glossary here.

 

 

Key Risks

 

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in Funds managed by the Asia team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. 

 

Disclaimer

 

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Thursday, May 23, 2019, 4:35 PM