Features

India: set to join the global top three

Victory in India's elections for Narendra Modi’s BJP sent the main BSE Sensex Index surging to a record high.

949_MW_P05_Markets

A Modi victory may not deliver economic reform

Narendra Modi's Bharatiya Janata Party (BJP) is now India's "natural party of government", says The Economist. The centre-right party won a second landslide victory and another five-year term in a country where incumbents are usually sent packing. The result sent the main BSE Sensex Index surging to a record high.

Turning things around

The prime minister can boast of presiding over the world's fastest-growing big economy, says James Crabtree in The Times. With the economy expanding at about 7%, India is already contributing as much to global growth as the UK, France and Germany combined.

Yet Modi has not delivered the "Thatcher-style economic revolution" his enthusiasts hoped for. India hasn't achieved the double-digit expansion of the type China enjoyed at its peak, and the BJP has failed to create millions of promised jobs. A leaked report has put the unemployment rate at a 45-year high.

Modi's pro-business stance went missing in a campaign dominated by "nationalist rhetoric", says Tom Miller for Gavekal Research. Yet with the opposition "obliterated", he now has a chance to push through more radical policies, such as privatising heavily indebted state-owned banks and loosening labour laws that keep people out of work. With growth set to slow to below 6.5% by the end of the year and investment spending lacklustre, he will know that bold action is required. Infrastructure investment is another positive, says The Economist the BJP plans to build "100 new airports and 50 metro systems".

Priced for growth

Weaker credit growth and the introduction of a much-needed value-added tax system have hit corporate earnings growth, which is now down into single digits. Those who have previously hailed India as the world's next "economic miracle machine" have been disappointed.

Yet the country's long-term growth prospects remain "compelling" despite the price, says Jonathan Jones in The Daily Telegraph. The demographics are excellent half the population is under 25 and the middle class is expanding rapidly. That should drive growth in consumption which accounts for about 70% of GDP from $1.5trn today to $6trn by 2030, according to the World Economic Forum.

Whatever Modi does with his new mandate, reforms enacted in his first term will bear fruit in the second, argues Craig Mellow for Barron's. Against a "backdrop of global crabbiness", the fact that "voters in the world's largest democracy think their country is on the right track" is a hopeful sign. Our favourite way to get exposure is via the Aberdeen New India Investment Trust (LSE: ANII), which is on an 8.5% discount to net asset value. David Stevenson also suggests several other funds on page 18.

Recommended

Emerging markets fall behind their developed-world counterparts
Emerging markets

Emerging markets fall behind their developed-world counterparts

While developed-world markets look forward to a recovery, emerging market stocks have tumbled as foreign investors pull out cash.
16 Apr 2021
Four of the best investment trusts for investing in emerging markets
Investment trusts

Four of the best investment trusts for investing in emerging markets

Investors need to tread very carefully in this risky sector. Here are the best ways to approach it
22 Mar 2021
Storm brews in emerging markets as investors pull cash out
Emerging markets

Storm brews in emerging markets as investors pull cash out

Foreign investors have begun to pull cash out of emerging markets as they begin to look less attractive when compared to the rising return from holdin…
12 Mar 2021
I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020

Most Popular

Inflation is taking off in the US and markets really don’t like it
Inflation

Inflation is taking off in the US and markets really don’t like it

US inflation is at its highest for 25 years. Stockmarkets – and tech stocks in particular – have taken the news badly. John Stepek explains why, and w…
13 May 2021
Inheritance tax planning: the rules around gifting
Inheritance tax

Inheritance tax planning: the rules around gifting

There are plenty of legal ways to minimise an inheritance tax bill. Perhaps the simplest is to give away assets to reduce the size of your estate. Dav…
11 May 2021
Is it time to top up on gold? Or should you wait for a better opportunity?
Gold

Is it time to top up on gold? Or should you wait for a better opportunity?

Fears of inflation, money-printing and a global pandemic are all conditions that should drive the gold price higher. But it has been struggling. Domin…
12 May 2021