“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.
-
What will the unravelling of US-China trade mean for the economy?What will a US-China decoupling mean for the global economy?
-
Scottish Mortgage: why we’re turning to private companies and China for exceptional returnsWhen it comes to delivering growth, Scottish Mortgage will stop at no end in its hunt for exceptional long-term returns - this includes China, unicorn companies and sectors such as space exploration
-
Two ways to tap into monopoly profits from airportsMost investors can’t get their hands on airports. Here are two ways you can
-
Fat profits: should you invest in weight-loss drugs?The latest weight-loss treatments could transform public health and the world economy. Should you invest?
-
How investors could profit from Ramsden Holdings' four-part growth strategyRamsdens Holdings offers a diversified set of financial and retail services and a juicy yield, says Dr Michael Tubbs
-
How to invest in the booming insurance marketThe insurance sector is experiencing rapid growth after years of stagnation. Smart investors should buy in now, says Rupert Hargreaves
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocksOpinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
BP's 'long, painful decline' – and why next year could be even tougherOpinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
-
Investment trusts tap the profits in exotic and obscure global marketsOpinion Peter Walls, manager of the Unicorn Mastertrust fund, highlights three investment trusts as he shares where he'd put his money
-
Falling revenues and mounting debt spell trouble for Jumia TechnologiesStruggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
