Encore Modi, Says India

Throughout the month of April anxiety was building in Indian financial markets as the general election to be completed in May was approaching.  Like five years earlier, the Indian VIX Index, aka, the “fear index” rose steadily heading into the results.   And like five years ago, Prime Minister Narendra Modi won a landslide victory in India, with his Hindu nationalist Bharatiya Janata Party securing a commanding parliamentary majority in the largest democratic exercise in history.

Markets like certainty over uncertainty and Prime Minister Modi’s majority government will provide stability.  Importantly, major structural reforms like land acquisitions and digitization of land records remain on track.  The reform record under Modi thus far is impressive as per the World Bank’s annual ease of doing business ranking, where India jumped 23 places last year to 77 out of 190 countries and much more since Modi first took office.  

The India Opportunity Fund is positioned for the relatively narrow rally in the Indian stock market to broaden in the second half of the year.  So far this year, India’s stock market has received a net inflow of foreign money, but it has been short term in nature via index linked ETFs.  Off-shore funds such as ours, which represent long-term money, have had a net outflow, as a group, through April.  In our view, long-term money has been waiting for clarity on the general election and that was recently delivered in an unambiguously positive manner.