Investors score more in PM Modi's rule than under Vajpayee's govt

A key factor that drove markets higher under PM Modi's regime has been flows - both domestic and foreign - into the equity markets

The markets have performed better under the National Democratic Alliance’s (NDA’s) Narendra Modi, as compared to Atal Bihari Vajpayee’s tenure as India’s Prime Minister (PM). 

The Nifty 50 index (Nifty as it was known then), notched up a gain of 5.7 per cent, while the Sensex lost one per cent on an absolute basis between October 13, 1999, when Vajpaee assumed charge as the PM, and May 19, 2004, when he left office, data shows.

Both these indices have surged a whopping 47 per cent and 45 per cent, respectively, under PM Modi – hugely outperforming the rally seen during 1999 – 2004. This, experts say, is despite the two key events, demonetisation drive in 2016 and the rush to implement the goods and services tax (GST), which disrupted the economic growth momentum.

The gain under Vajpayee’s tenure, analysts say, came on the back of the government’s increased focus on infrastructure development, especially roads (the golden quadrilateral, or the GQ), and the push for big bang reforms such as the four big-ticket strategic divestments – in Bharat Aluminium and Hindustan Zinc (both to Sterlite Industries), Indian Petrochemicals Corporation (to Reliance Industries) and VSNL (to the Tata group).

Besides the reform/policy measures under Modi’s regime, a key factor that drove markets higher has been flows – both domestic and foreign – into the equity markets, analysts say. That apart, India was a favourite among the foreign investors in the emerging market pack given the health of other major global economies.

“Modi has been good with reforms as well and opened foreign direct investment (FDI) avenues, such as in insurance and aviation. Demonetisation, though a drastic step, was seen as a measure to tackle the menace of black money. Investors saw this in a positive light. The reforms undertaken till now got retail investors and mutual funds, too, to invest in equities as an asset class. This crucial aspect of financialisation was missing in the Vajpayee government,” explains G Chokkalingam, founder and managing director at Equinomics Research.

And the numbers prove him right.

While foreign institutional investors (FIIs) pumped in around Rs 717 billion in Vajpayee’s tenure, they have invested over Rs 1,410 billion from May 26, 2014 to June 13, official data shows. Mutual funds, on the other hand, which withdrew a net Rs 66.5 billion in Vajpayee’s tenure, have pumped in a huge Rs 3,345 billion under Modi.

Going ahead, Jan Dehn, head of research at Ashmore Investment Management, expects flows to emerging markets to pick up pace. India, he says, will get a share of these, but it will be less than what it deserves due to the outdated capital controls still in place in the country.

Though the jury may still be out on how effective the policies and governance has been under both these regimes, stock market investors surely have seen acche din under Modi.