Wall Street loves India. And now President Barack Obama is warming up to the new Prime Minister that’s made India the darling of emerging market investors. Obama leaves for India this weekend to attend Monday’s Republic Day parade in New Delhi. It’s the second time Obama and new PM Narendra Modi have met in a four month period. The trip marks the first time that a U.S. president attended India’s celebration of its 1950 constitution. Not too long ago, Modi was banned from traveling to the U.S. because of his Hindu nationalism.
Modi took over the PM spot in May. His Bharatiya Janata Party (BJP) won the majority of Parliament during the general elections and investors couldn’t be happier. They’ve been throwing money at Indian equities ever since.
Year-to-date, the Wisdom Tree India (EPI) exchange traded fund is up over 10%, beating the MSCI World Index. Since May, the India ETF is up over 13%, beating the S&P 500 and the MSCI World. For investors, both corporate and portfolio, this is the place to be. In a way, India’s become the new China.
“These are two entrepreneurial countries that want to do business together,” says Gunjan Bagla, managing director of Los Angeles based management consulting firm Amritt. The company helps U.S. firms do business in India.
Modi has a political mandate since BJP clobbered the rival Indian National Congress last year. Investors like his pro-business, pro-reform politics. But Wall Street and Washington are not always on the same page.
Investors are hoping for policies that open up the market, streamline bureaucracy, reform tax laws — a perennial favorite — and provide local incentives to build out India’s infrastructure. Legislation on the goods and services tax is expected in 2016. This is a plus for Indian manufacturing, and in line with Modi’s “Make it India” program. If passed, it would give manufactured goods a 10% tax cut. Infrastructure goals touted by Modi is further supported by a tax incentive to expand Indian manufacturing.
“Love India. Love Modi. Love Rajan,” says Vladimir Signorelli, co-founder of Bretton Woods Research. Rajan Raghuram is the Reserve Bank of India governor. The market has been bullish on him since he took over the central bank in September 2013. He’s been a rate cutter and kept the rupee stable. “What’s not to like? Modi is on the right side of the market,” Signorelli says.
