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What to expect after Modi's state election win

What to expect after Modi's state election win

Prime Minister of India, Narendra Modi, had a big win in a key state election, the state of Uttar Pradesh, on Saturday.

The victory was seen as a boost for his economic reform agenda, including the unprecedented demonetisation, which happened last November.

The win has strengthened Modi's popularity with the general public, a sign that his radical economic reforms have been well received by the people.

The Bombay Stock Exchange opened on Tuesday at 29,445, up from Friday's close at 28,929.

In this reaction piece, Citywire Asia collates top asset managers' views on how the election affects their investment stance in India and which aspects of economic reforms that they need to keep an eye on for making better investments in the country.

Arthur Kwong, BNP Paribas Investment Partners

Head of Apac equities

The election result indicated a smoother path ahead for further reform policies, affirmed our confidence to India.  

In our opinion, the unexpected demonetisation that occurred on November 9, 2016 would dampen consumer sentiment and liquidity circulation for 6-12 month; however, this was long-term constructive to banking and tax systems because the deposit of old tender for new tender boosted the country’s bank accounts penetration and force informal sectors to evolve and operate in the formal economy.

Subsequently, the government would improve tax collection in due course. Furthermore, the pace of GST development in 2016 was encouraging, clearly demonstrated Prime Minister Modi’s and his team’s strong determination to execute.

This GST should also result in a wider tax revenue base and support public expenditure in the long term.

Overall, the government became leaner in structure under the new administration, focused on delivering results with proper incentives and efficiency.

Important bills such as the Companies Bill, Insurance Laws Bill, Black Money and Imposition of Tax Bill, Coal Mines Bill, Mines and Minerals Amendment Bill were passed so far.

We have been maintaining our preference for India and will continue to watch out for upcoming changes and assess investment opportunities.

We do not believe the current run up in share prices has fully captured longer term economic benefits, given ROE of the Indian market was on the verge of recovering from multi-year lows.

Jonathan Schiessl, Ashburton

Chief investment officer (intertional)

The result in Utter Pradesh needs to be put into context - Modi and the BJP had no historical right to win as many seats as they did, in a state they have never been particularly strong in.

The result was a stunning victory that effectively sets Modi up for an extended period of leadership.

Where else in EM (let alone DM) do we have a major, high growth economy with such political stability over such an extended period? The market was NOT pricing this outcome in.

This year has started better than I originally anticipated, but I believe there is still upside potential from both equities and the currency as markets price in the new political environment.

We generally do not flex portfolio positions due to election outcomes, but we do believe this election will strengthen many of the current focus points of the PM to which our portfolio is aligned.

These include overweights to financials, industrials (focus on infrastructure spend) and consumer discretionary.

We are positioned for an economic and earnings recovery that we believe will finally emerge in the period ahead, albeit in a patchy and selective manner at first.

Kannan Venkataramani, NN Investment Partners (Singapore)

Senior Portfolio Manager (Emerging Markets Equity)

We continue to remain positive on Indian markets for 2017. Prime Minister Modi’s success in Uttar Pradesh has substantially increased the probability of a second term for his Government at the national level in 2019.

PM Modi’s government has already initiated structurally positive long term reforms and this will ensure continuity on this path. Reforms combined with improved governance will be positive for long term economic growth prospects in India.

We have a number of high conviction positions in India. We will continue to look for more investment opportunities especially in domestic economy sensitive sectors.

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