Indian stocks bounce back – should you invest?
Indian stocks make a comeback after the country's general election. Should you invest?
“The new Modi government looks a lot like the old one,” says The Economist. Indian voters recently stripped prime minister Narendra Modi’s governing BJP party of its parliamentary majority for the first time in a decade, leaving it to rely on smaller parties to stay in power.
Concern that a shaky coalition could undermine growth saw Indian markets plunge 6%, wiping $400 billion off stocks in a single day earlier this month. However, Modi has assembled a coalition that is broadly “sympathetic to his pro-business” agenda, with many of the key ministers from the last term remaining in place.
The result? The BSE Sensex index “clawed back all its losses” within a week and is up 7% since the start of the year. Modi has already achieved much since coming to office in 2014, says John Reed in the Financial Times. His government has “stabilised” a “wobbly macroeconomy”, implemented much-needed tax reforms and powered into the digital economy.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
But India still faces “deep structural challenges” in areas such as farming, where “mass protests” have seen off previous attempts at reform. New Delhi wants to build up India’s manufacturing base, but that requires difficult changes to labour and land laws. As one local business commentator puts it, if Modi didn’t manage these reforms in the last 10 years, “why would we see them now that the BJP doesn’t have the majority”?
Complaints about a “two-track economy” that leaves too many people behind gained more traction than expected at the polls, says Jon Sindreu in The Wall Street Journal. That could well force Modi to “shift some of the attention he has paid to infrastructure and investment” toward social programmes to placate angry voters.
Nevertheless, growth will continue as already agreed infrastructure projects bed in. Capital expenditure has hit more than a third of GDP. The “Indian growth story remains a compelling one”.
Is it a good time to buy Indian stocks?
The Mumbai bourse’s recent gyrations serve as a reminder that professional investors are horribly “bad at assessing political risk”, says Nicholas Spiro in the South China Morning Post. India is the world’s most expensive major equity market on a forward price-to-earnings basis, surpassing even the US. Indian shares deserve some of that premium thanks to rapid growth, quality companies and a “geopolitical sweet spot”.
But local stocks look “priced for perfection”, leaving them vulnerable to bad news. Indeed, some foreign money managers have been quietly pulling out in recent months, taking the share of foreign ownership of Indian stocks below 18%, the lowest since 2012. Instead, local retail investors are “powering the rally”.
India’s election result shouldn’t radically derail its impressive growth trajectory, says Thomas Mathews of Capital Economics. The economy could well double in size over the coming decade. But that doesn’t make Indian stocks especially compelling.
A “very benign” backdrop for India – from improved economic stability and the global hunt for alternatives to China – already looks priced into shares. Indian stocks have had a good run, but further world-beating returns will be a tall order from here.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex Rankine is Moneyweek's markets editor
-
Number of ISA millionaires triples in three years
The number of people with £1 million in their ISAs has tripled in three years to reach 3,180. But could next week’s Budget put an end to future ISA millionaires?
By Ruth Emery Published
-
IMF upgrades UK growth forecasts ahead of Budget - here is what it means
The upgrade comes ahead of chancellor Rachel Reeves's first Budget on 30 October, where she intends to explain how she will further boost UK economic growth
By Chris Newlands Published
-
What will a broken-up Google look like?
The US courts have ruled that Google is a monopoly, leaving it facing the prospect of a break-up. WIll that be a good thing?
By Matthew Lynn Published
-
How will the UK gambling sector be hit by the Budget?
There are concerns for the UK gambling sector in the lead-up to the Autumn Budget. What could be on the cards?
By Dr Matthew Partridge Published
-
Chinese economy: will the "bazooka" stimulus work?
The Chinese economy is relying on the "bazooka" stimulus to grow. Will it work or flop?
By Alex Rankine Published
-
HSBC returns to cost-cutting plan
HSBC is set to revamp its commercial banking division – but will it come at a cost?
By Dr Matthew Partridge Published
-
Pfizer shares rise as US investor takes $1 billion stake
Pfizer shares are on the up since US activist investor Starboard Value built up a stake in the drug maker. But strategic options appear limited
By Dr Matthew Partridge Published
-
Japan’s new PM Shigeru Ishiba calls snap election – why now?
The new leader, Shigeru Ishiba, has called a snap election seeking a new mandate just three days into his post. What does this mean for the country's economy?
By Emily Hohler Published
-
Qualcomm could acquire rival Intel – but securing the deal won't be easy
A tie-up between Qualcomm and its semiconductor rival Intel would be a coup. But multiple regulatory and commercial hurdles lie ahead.
By Dr Matthew Partridge Published
-
Modi’s reforms set Indian stocks on fire
Indian stocks pass a new milestone, but global fund managers are holding back. Are there signs of overheating?
By Alex Rankine Published