India’s general election

Will more of the same be good for markets?

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India is not only the fifth largest economy in the world, it’s also one of the fastest-growing, with the World Bank projecting GDP growth of 7.5% this year. The country’s general election is scheduled to begin on 19 April, with nearly 1 billion people eligible to vote.

The current Prime Minister of India, Narendra Modi of the Bharatiya Janata Party (BJP), has been in office since 26 May 2014. If re-elected for a third term, Modi has pledged to make India the third largest economy by 2027.

The average investment trust in the India / India Subcontinent sector has produced a return of 28% over one year, 42% and 170% over five and ten years – outstripping the average Global Emerging Markets trust which has generated returns of 8%, 14% and 73% over those periods.

To understand how India’s election could impact the investment outlook, the Association of Investment Companies (AIC) has gathered comments from investment trust managers in the India sector. Their comments can be found below.

Gaurav Narain, Portfolio Manager of India Capital Growth Fund, said: “The Modi-led BJP is expected to win. The main question is how strong would the mandate be? In the previous election in 2019, the BJP won 303 of 543 seats. Their target in this election is 370 seats. The closer they reach to 370 the more positively it would be viewed. As the expectation of a BJP victory is already factored in, we see no material impact on the markets or the fund. If the BJP however fares poorly, or does not get a majority, it would be negative for the markets and the fund.”

Ayush Abhijeet, Investment Director of White Oak Capital Partners which advises Ashoka India Equity Trust, said: “The consensus expectation is for the continuation of the current regime with a strong majority further bolstered by recent state election results. The markets are likely pricing this in with a very high probability, and any contrary outcome, such as a weak coalition at the centre would be a negative surprise.”

James Thom, Co-Manager of abrdn New India Investment Trust, said: “With polling being held in seven phases between 19 April and 1 June, the consensus expectation is for Narendra Modi and BJP to win a third term in office with relative ease – opinion polls appear to indicate this outcome. Thus, the election risk is low. Modi’s return is viewed by the market as a positive because it implies policy continuity in India, including his extensive reforms agenda, and demonstrates political stability. This should provide a supportive backdrop for sustained economic growth and for the government to pursue its ambition of turning India into a global manufacturing hub.”


Amit Mehta, Portfolio Manager of JPMorgan Indian Investment Trust, said: “India has overtaken China as the most populous country in the world with an age distribution weighted towards working age groups. This demographic shift, and the associated rise in incomes, should continue to fuel the growth in India’s middle class. Consequently, we are seeing a number of exciting opportunities in the consumer space, such as leading auto manufacturer Mahindra & Mahindra with a continually growing business in tractors, farm equipment and SUVs. This company stands to benefit significantly from increased consumer demand and consumption spending.

“We are also seeing significant opportunities in the financial sector following successful efforts by the government to ensure Indian consumers have greater access to banking and financial services. These developments have coincided with the trend towards digital empowerment and enhanced connectivity, another Indian success story. The scope for future growth is substantial, particularly as investor appetite spreads to more advanced financial products including pensions, credit cards and insurance. HDFC Bank, one of India’s leading housing finance companies, is well positioned to benefit from these developments. During the recent merger and the management transition, HDFC proved its resilience and delivered strong results.”

Elisabeth Scott, Chair of India Capital Growth Fund, said: “I was very pleased, in my role as Chair of India Capital Growth Fund, to go and see the action for myself. From the exuberant owner of the tiny Afghan spice shop, luring us in with colours and smells, to the engaging saleswoman at the $2m luxury apartments in central Mumbai, entrepreneurial drive is everywhere. Sweeping infrastructure projects are visible at every turn, and progress, albeit slightly chaotic, is clear. Politically the country appears stable, with a clear expectation that the BJP will retain power. 

“We met with a multitude of companies, manufacturing items from auto parts to suitcases and not a single one wavered on the opportunity ahead. Curiously, while the world looks on in interest, the reverse is not the case. India isn’t hedging its bets on filling the export gap left by China but instead is looking internally at the fast-growing domestic market, enabled by an unprecedented state physical and digital infrastructure roll out.”

Ayush Abhijeet, Investment Director of White Oak Capital Partners which advises Ashoka India Equity Trust, said: “India is benefitting from several secular tailwinds. A potential multi-decade growth opportunity is unfolding as per capita incomes rise, creating inflection points for various categories where India is at the lower end of the consumption curve. Additionally, the country is experiencing rapid digitalisation of services, supported by increasing internet penetration and formalisation on the back of crucial ongoing structural reforms. The government is undertaking steps to indigenise manufacturing while upgrading the country’s infrastructure, ably supported by a banking system which is at its healthiest in over a decade. There is also a strong impetus behind structural reforms which are likely to foster a favourable growth-productivity dynamic.

“From a market cap perspective, while the portfolio is invested across the spectrum, we find a greater number of opportunities in the small and mid-cap segment, which is highly fertile for alpha generation due to greater inefficiencies.”


Amit Mehta, Portfolio Manager of JPMorgan Indian Investment Trust, said: “For investors looking at India, we think there are three main risks to consider over the near term: inflation, potential political surprises, and a possible downturn in the US economy.

“Inflation remains the top risk, in our view. As a large net consumer of commodities, and an energy importer, the Indian economy has always been vulnerable to rising commodity prices, particularly oil and gas prices. Rising import prices could widen the current account deficit, weaken the rupee and compound price pressures.

“Although risk within politics is never off the table, our base case is that the Bharatiya Janata Party government, which is pro-reform and business, comes back into power in this year’s elections. For long-term investors, we think the implications of the election are limited. However, for those with a shorter time horizon, any surprises could prove to be a risk.

“Lastly, investors in India – and emerging markets more broadly – should still be cognisant of a potential US recession and the impact of future Fed commentary.”

James Thom, Co-Manager of abrdn New India Investment Trust, said: “Investing in India is never without risk. One of the reasons is that it is an expensive market compared to other emerging markets. While high valuations reflect the long run potential of the country, they leave less margin for error. Hence, it is important to be selective in finding good companies that can consistently deliver on earnings. There are some other external risks too: potentially higher energy prices when India is a net oil importer; a global economic slowdown that can affect exports; and geopolitical tensions with neighbours China and Pakistan which could also have an impact on political stability. Having invested in India for over 20 years, in our view bottom-up stock picking based on fundamental research remains the best way forward when it comes to India.”


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