Modi’s loss may be India’s gain | Wilnesh News

This report comes from this week’s CNBC “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse and the big players behind its meteoric rise. Like what you see? You can subscribe here.

Without further plot twists, Modi is likely to be sworn in as prime minister this weekend. However, the weakening of the mandate hurt his brand.

“Modi’s aura of invincibility has been shattered,” Tom Miller and Udith Sikand of Gavekal Research said on Wednesday. “He will face political challenges in the future not only from opposition leaders but also from rivals within the party.”

People don’t have to wait for these challenges. The blow to the BJP has been enough for speculators to float the idea – however outlandish it may be – that an opposition alliance could form a government by attracting smaller alliance partners in the BJP-led alliance to its side .

stable alliance

For Wall Street, the fact that Modi will be taking office for a rare third term provides stability and predictability.

“The situation in India is different today as Modi has had a strong positive impact on the market, but in the end Modi is still in power and the market should feel relieved that India’s democratic electoral system is working.” Head of Emerging Market Strategy at Global X Malcolm Dorson told CNBC. Mirae Asset, the parent company of Global X, is one of the largest foreign asset management companies in India.

“Leadership continuity should also be reflected in political continuity,” Bank of America economist Aastha Gudwani said in a research note to clients. “While some hard reforms may was postponed to the coalition government’s mid-term agenda, but the reform agenda remains intact.”

India’s labor laws are decades old and are said to be inflexible and in need of serious reform. Farmer protests in India’s highly inefficient agriculture sector forced the previous government to undo the reforms within just months of their implementation.

However, analysts say there is “little chance” that the prime minister’s new government will pursue these reforms due to its weak mandate.

“This could hamper economic growth as Modi would find it more difficult to liberalize agriculture, land and labor markets,” Gavekal Research analysts said. “But if it prevents the BJP from pursuing hardline Hindu nationalist policies, it May put India in a safer position socially.”

Dolson, who is also a supporter of the Global

stock market returns

Moving away from the strongman politics of the past could also bring other benefits to Modi, India and investors.

In fact, alliances can be profitable for investors. Data shows that during the past four governments, two of which were coalition governments, the Nifty 50 index rose by an average of 109% per parliament in India.

“The bottom line is that macro stability is good for stock prices and is the main reason to be bullish on the outcome of this election,” said Morgan Stanley equity strategists led by Ridham Desai.

“we estimate Sensex Achieving compound annual returns of 12-15% over the next five years.

Investors are likely to get their first glimpse of the direction the new Modi government is taking when it unveils its budget in July. Will the government continue to make beneficial investments in infrastructure companies? Or will it increase welfare subsidies that could benefit consumer durables stocks?

“The direction of increased capex (capital expenditure) is likely to continue as the manufacturing sector continues to receive policy support,” Goldman Sachs’ Pulkit Patni said in a note to clients on Thursday. , which is consistent with the view of our economists.

The Wall Street bank said the rail and defense sectors would be a “key focus” given their strong growth over the past few years.

Abhiram Eleswarapu, head of India equities at BNP Paribas, said investors may also choose to wait before making big decisions because the stock market “has gone up quite a bit in the last three to four years. “.

“A lot of the good news is reflected in prices, so investors may choose to wait for some announcements to translate into actual execution,” Eleswarapu told CNBC’s Inside India.

CNBC’s Tanvir Gill answers this question five big questions People have been asking her about Modi’s weaker-than-expected election victory. CNBC’s Sri Jegarajah reports from New Delhi that the prime minister needs to Lean to approximately 25 alliance partners realize his economic vision.

CNBC’s Sumathi Bala reports on the challenges Modi faces in coaxing smaller parties, some of whom may disagree with him economic or political agenda For the country.

Meanwhile, CNBC Global Markets Correspondent Seema Mody reports Concerns among some U.S. investors They spent time and money building relationships with India.

For CNBC Pro subscribers, Amala Balakrishner talks to investors who point out their 10 stock picks in infrastructure, the digital economy and entrepreneurial ecosystem, and consumer discretionary.

Indian stocks have recovered from a 6% loss on election result day. The Nifty 50 index gained 1.3% for the week. The index has gained 5.16% this year.

India’s benchmark 10-year government bond yield remains relatively depressed, with the yield at 7.02%, slightly higher than last week.

This week, the CEO of privately held Akasa Air said on CNBC India’s aviation infrastructure should be able to keep pace with aircraft orders over the next seven years. Vinay Dubey added that he could not have made such a statement five or seven years ago.