Despite the lack of an economic upturn in India and uncertainty regarding the outcome of the upcoming general election, Christopher Wood, managing director and equity strategist at CLSA has maintained a ‘double-overweight’ rating on India. He has also replaced the investment Arvind Limited in his Asia ex-Japan long-only portfolio with Arvind Fashions the branded apparel business of Arvind, post the demerger and the listing of the latter earlier in March.
As regards polls, Wood expects Narendra Modi – led National Democratic Alliance (NDA) to return to power post the general elections. PM Modi, he feels, is reaping the reward of a robust response to the Pulwama attacks, which has led to a surge in his popularity.
“The forthcoming general election will be held in the absence of clear cut evidence of an economic upturn. GREED & fear has always thought BJP would win the forthcoming general election. But there is no doubt that concerns had been growing in recent months. It is the case that Modi’s structural reforms, such as demonetisation and GST, have caused economic pain in the first instance. This is why the recent military skirmish with Pakistan could well prove the equivalent for Modi of what the Falklands War was for the late and great Margaret Thatcher in 1982,” he wrote in his weekly newsletter, GREED & fear.
Adding: “For prior to that event, and the related surge in jingoism, Thatcher was looking far from guaranteed for re-election as the media and the masses attacked 'the cuts'. As for Modi, he is reaping the rewards of a robust response to the killing of more than 40 Indian soldiers in Indian – administered Kashmir on February 14.”
Thus far in calendar year 2019 (CY19), the S&P BSE Sensex and the Nifty50 have rallied over six per cent each, with a bulk of the gains coming in March as foreign institutional investors poured in money, expecting the Modi – led NDA to continue at the Centre post the election outcome in May.
The S&P BSE Sensex has gained around seven per cent in March on the back of a strong rally in banking and realty stocks. The S&P BSE Realty index moved up nearly 14 per cent, while the S&P BSE Bankex has gained around 11 per cent during this period. The S&P BSE Midcap and the S&P BSE Small-cap indices, too, rallied 5.9 per cent and 8.3 per cent in March, ACE Equity data show.
“There has been $3.3 billion of net buying of Indian equities by foreign investors since an opinion poll was released on March 4, showing a big increase in support for the Bharatiya Janata Party (BJP) following the airstrikes on February 26 in Balakot in Pakistan. The BJP is now expected to get 41 of the 80 seats in India’s most populous state of Uttar Pradesh (UP), compared with the 29 seats expected by the same opinion poll in January,” Wood wrote.
The key risk for Indian markets, according to him, is the slowing down of inflows into local equity mutual funds. And the data does prove him correct. Domestic equity mutual funds’ monthly net inflow, excluding arbitrage funds, has declined from an average of $2.5 billion in January – February 2018 to $0.7 billion in the first two months of 2019, reports suggest.