As India heads to the polls, investors are looking to profit from Modi's policies

MW As India heads to the polls, investors are looking to profit from Modi's policies

By Louis Goss

As India heads to the polls, a Narendra Modi victory is set to be well-received by investors looking for more of the current prime minister's growth-boosting policies, Societe Generale said.

India's general elections, which started on April 19 and finish on June 1, will see up to 970 million people vote to pick who will be the country's prime minister for the next five years.

Modi's right-wing Bharatiya Janata Party (Indian People's Party) is fighting the elections as the largest bloc in the broader National Democratic Alliance, a coalition of 40 separate parties.

The right-wing alliance is currently leading the polls against its main opposition, the left-wing Indian National Developmental Inclusive Alliance, led by Indian Congress president Mallikarjun Kharge.

Now, with Modi on track to win a third term in office, markets are expecting a continuation of his policies driving economic growth, analysts at Societe Generale, led by Frank Benzimra, said.

Societe Generale analysts said that in the short-term markets would likely react negatively if Modi were to lose the election, due to their confidence in the current government's policies.

In a note, the analysts said markets had already priced in a victory for the National Democratic Alliance, as they noted Indian stocks have held up as the election has neared.

In the case of a Modi victory, investors are expecting a continuation of current policies, which have seen the Indian stock market surge, including high levels of public spending on infrastructure and a promised privatization push.

Under Modi, India's Hindu nationalist government has invested billions into new rail and power infrastructure, in a spending push that in itself has increased the country's gross domestic product by around 1.5%.

Indian stocks have, in turn, boomed since Modi first assumed office in May 2014, as the country has undergone a decade of fast-paced growth.

Modi's privatization push could also see widespread sell offs of India's state-owned assets, if he wins another term, after the government outlined its first disinvestment plans in 2019 .

So far, this policy has led to the sale of just one major state-owned company, Air India, which was sold to Tata Sons for $2.3 billion in 2021.

Higher valuations and the boost to state-owned enterprises caused by Modi's public spending policies have, however, paved the way for the privatization push to take off, the analysts said.

The analysts said a Modi loss could, however, create an opportunity for investors, with previous changes in government having seen markets fall sharply before recovering in following months.

India's Nifty 50 IN:NIFTY50 stock index previously fell 15% in the month after the BJP lost the general elections in 2004, before recovering in the following months.

Either way, Modi's policies have already won over Indian investors, who have piled into domestic stocks via mutual funds, in a shift that has bolstered India's markets.

The iShares MSCI India ETF INDA has increased 27% in the past 12 months, having advanced 77% since Modi took office in May 2014.

Foreign investors are more skeptical. Having previously invested heavily in Indian stocks from 2014 to 2019, they are now increasingly holding back, as valuations have surged.

The analysts said foreign investors are now increasingly looking at earnings in seeking to justify high valuations, particularly in comparison to India's Asian peers.

Indian tech stocks are, however, trading at significantly lower premiums than those in the industrials sector, which are now increasingly at risk of being hit by rising commodity prices.

Long term, Societe Generale's analysts said investors would be best placed to invest in stocks poised to gain on the growth of manufacturing and India's ongoing green transition.

Fast-growing Indian demand for power, driven by the country's rapid industrialization, is set to see the country's generation capacity increase by 50%, to 426 GW, in the next three to four years alone, with renewables a focus.

India is currently aiming to treble its renewable generation capacity to 500 GW by 2030, in line with its push to transition into a net zero economy by 2070.

This green push, paired with a recovery in private capital expenditure from the 2008 crash, could boost Indian corporate earnings by $200 billion by the end of this decade in causing earnings to grow at annual rates of 20% for the next seven years.

As such, Societe General recommended investors buy into the SG India Manufacturing Basket and SG India Green Transition Basket to profit on India's boom.

-Louis Goss

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April 30, 2024 05:46 ET (09:46 GMT)

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