May 22, 2019

The BJP party looks set to maintain its majority in the lower house of congress, s the Lok Sabha, with exit polls suggesting Modi’s party might have won even more seats than it had before. Exit polls are predicting a clear majority to the BJP-led National Democratic Alliance, a coalition of political parties. Some polls say the party will hold over 300 seats out of the total 542 seats in the Lok Sabha. The Modi coalition is also seen making gains in five states. India Today newspaper exit polls are forecasting a landslide win for the BJP-led alliance with over 350 seats . Other polls suggest a much lower count, but even a lower count would not be enough to give the Indian National Congress party a win. Narendra Modi is back. Results will be made official on Thursday.

India stocks are up, though a Modi win is no surprise. The Sensex settled 0.36% today and the Nifty 50 settled 0.25% higher. The Wisdom Tree India (EPI) exchange-traded fund was lower on Wednesday, underperforming the rest of the emerging markets.

Since the middle of 2018, Modi’s coalition has suffered setbacks in state elections and has witnessed the growing reversal of political party fragmentation that allowed it to dominate the 2014 election. Early indicators suggested Modi had lost momentum and his coaltion would be weaker, holding onto a simple majority. Foreign investors in India were expecting this, so if BJP surprises and blows everyone out of the water, India’s stock market should rise. It just might not go up all that much.

“The risk is that renewed high expectations and elevated market multiples have added to the market premium that set in after the 2014 election,” says Sriyan Pietersz, an investment strategist with Matthews Asia. “A better-than-expected result may result in only modest upside.”

India has been drama-free for years, with market attention focused on Russia sanctions, China trade wars and a radical shift in governments in Brazil. India has been even keel under Modi. Yet despite solid economic growth, India hasn’t generated much in the way of returns under Modi. Investors have been disappointed. India-bound investors have been beaten by Russia, China and Brazil all year, though Brazil has been slipping lately. India stocks, as measured by the Wisdom Tree India fund, are up just 1.8% in the last 12 months, beating the benchmark MSCI Emerging Markets, Russia, Brazil and China. Only China has beaten India over the last five years, and even that hasn’t been exciting for Modi, with EPI up just 8.75%. The S&P 500 is up over 50% in five years.

“For investors and business people, there is much unfinished business for Modi,” says Gunjan Bagla, managing director of Amritt Inc., a Malibu-based consulting firm helping U.S. companies do business in India.

“His government needs to launch massive programs to train tens of millions of workers in blue-collar trades,” Bagla says, adding that Modi’s  Make in India program has been successful at producing more cell phones in India, but that business is a small part of the overall opportunity.

“The capital equipment to expand Indian manufacturing and the know-how to implement world-class factories and processes will come from American and German companies,” he says. “Trump’s tariffs on Chinese imports to the United States will perk up the need to manufacture in India. This could create a virtuous spiral in U.S.-India trade.”

One of the questions surrounding a new Modi government is whether Finance Minister Arun Jaitley will remain. He has had health issues and could be replaced by Railways and Coal Minister Piyush Goyal. Goyal took over for Jaitley twice when he was in the U.S. for medical treatment. Goyal also served on the board of the State Bank of India, and the Bank of Baroda. The Economic Times of India reported today that Jaitley will stay on board. Over the past five years, Jaitley was instrumental in passing the nationwide goods and services tax, a proposal that had languished for nearly two decades in India’s highly cumbersome congress.

By Ken Rapoza

https://www.forbes.com/sites/kenrapoza/2019/05/22/indias-narendra-modi-locked-in-for-second-term/#52dfaf422600