Our Opinion: 2014
India’s election results
Narendra Modi’s election victory in India makes his Janata Party (BJP) the first party since 1984 to win a majority.
He faces a daunting number of problems: bringing down the budget deficit, tackling inflation, boosting growth, and making India a more attractive destination for foreign investment. The stock market seems to think he will achieve his objectives, and rose 7% as the scale of the win became clear. The Rupee also rallied.
Modi was Chief Minister in the state of Gujarat since 2001. Despite having only 5% of India’s population, it now accounts for 22% of all exports and 16% of all economic output. His record of raising economic growth, improving infrastructure and reducing bureaucracy suggests that he will now act quickly and announce significant reforms.
Some caution is still needed since the BJP has a clear majority in the lower house of Parliament but not the upper house, where members are chosen by state Government and are not directly elected.
Christopher Wood of CLSA, one of Asia’s longest investment group, notes ‘this is the best possible outcome you can imagine. The decisive majority gives the incoming Government a clear popular mandate and means that Modi actually has a chance of effecting real change. India is looking extremely attractive… Among the BRIC markets, India would rank best right now.”
Indian stocks are trading at a significant premium over most other emerging markets, perhaps deserved in the current climate.
