‘Modi premium’ boosts Indian stocks

The most important election in emerging markets in 2014 will be India's, says Ian King in The Times. Narendra Modi, the leader of the Hindu, centre-right BJP party, looks set to replace the Congress Party's Manmohan Singh as prime minister after elections in May.

Following BJP victories in four state elections last month, India's benchmark Sensex index rose to another record high. Modi, says brokerage CLSA, is "the Indian stock market's greatest hope".

You can see why, says The Economist. Congress has been in power since 2004 and "long ago lost its vim". In recent years India's annual growth rate has halved to 5%. Modi could reverse the trend.

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He governed the state of Gujarat for 12 years and managed to cut red tape and get roads and power lines built. "Business has boomed and investment has poured in." Gujarat expanded by 1.5% more than India as a whole every year on average between 2007 and 2012. During his tenure, the state's GDP tripled.

Still, investors "shouldn't get too excited", says Abheek Bhattacharya in The Wall Street Journal. For starters, the BJP is likely to come to power only as part of a coalition. Given Modi's history as a "controversial Hindu nationalist" he has never shown remorse over a massacre of Muslims in Gujarat in 2002 this could threaten the formation and stability of a government.

Meanwhile, says Bhattacharya, reviving overall investment would certainly raise GDP growth "a notch". But if India wants to "shift the economy onto a permanently higher plane" it needs "deep" structural reforms on land, labour, taxation and education. "These areas are controversial" and Modi has been "coy" on specifics.

And for all the hype around him, it's not a given that he can repeat his Gujarat success nationally. There is a "constant tug of war" between India's states and its central government, says Henny Sender in the Financial Times. On top of that, "democracy is often confused with the right to try to extort from everyone else" vested interest are deep-rooted.

All of this explains why there hasn't been a bauxite mine approved in the state of Orissa for 13 years, for example, while eight years after a Korean firm got permission to establish a steel complex it has yet to be built.

In short, the Modi premium' can only carry the market so far genuine change needs finally to materialise if India is to make lasting progress.