India’s national election exercise, the largest in the world, culminated on 4 June with the incumbent BJP-led alliance winning a thin majority. However, the current prime minister Narendra Modi’s Bharatiya Janata Party (BJP) fell short of the majority mark on its own. This was contrary to the exit polls and market expectations which had priced in a much larger number of seats for the ruling alliance, the National Democratic Alliance (NDA), and a clear majority of the BJP.
As a result, Indian markets saw a sharp correction yesterday with local market index Nifty down 5.9% versus previous day’s close. The MSCI India Index also fell 6.9% in USD terms on 4 June after gaining 13.1% so far in 2024. However, on 5 June, the Nifty index has opened 1.1% higher.
According to Amit Goel, Portfolio Manager of the Fidelity India Fund and the Fidelity Global Emerging Market Fund:
“Many investors are disappointed that Modi’s BJP party will need the support of its allies to form a government. The BJP’s allies will hence have greater bargaining power, potentially including in the cabinet, a say in the reform process and other policy decisions. It means that the new government will have to be more collaborative and make decisions after building a consensus. It could lead the new government to focus on more inclusive growth versus a massive K-shaped recovery that we saw in last 2-3 years, where middle/upper-middle class consumption did well while rural/lower income segment consumption was stagnating. This could also mean that the government may have to balance long term reforms with short term fiscal prudence. However, I still don't see a change in long term fiscal consolidation and growth in India, which are the two important drivers of economic and market performance.
Overall, we expect to see some consolidation in near-term, away from some of the exuberance we saw in sectors like state-owned enterprises, utilities, infrastructure plays, small caps, etc., while sectors such as consumer and financials should see positive moves.
I firmly believe that this does not break the India story where growth drivers are structural and long term in nature given its strong demographics and domestic-focused consumption trends. India is a place where one can invest with a very long-term view because it has a more sustainable and high base rate growth for GDP and corporate earnings. Also, being a democracy, policy changes are not sudden but largely evolutionary. We do not expect any major changes and continue to focus on high-quality sustainable growth companies available at reasonable valuation with a 5-7-year investment horizon.”
