Social, political agenda more important for Modi than economy: Chris Wood

Social and political agenda seems to be more important for the Narendra Modi-led government than economy as things stand, feels Christopher Wood, global head of equity strategy at Jefferies. Though he remains a supporter of Modi’s structural reforms, the recent developments relating to the citizenship law, Wood wrote in his weekly note (GREED & fear) to investors, have seemingly confirmed the longstanding criticism of Modi and the Bharatiya Janata Party (BJP) – that they are committed to pursuing a Hindu supremacist agenda.

While the above issue may not have a direct influence on the Indian stock market unless there is a complete breakdown of law and order, Wood says these issues remain a distraction that the Modi government could well do without given the economic challenges it faces. 

“And one of those challenges is generating jobs. In this respect, it is interesting to GREED & fear that these policies have gained momentum since Shah became Home Minister after Modi’s re-election in May. As the second most powerful man in India, and the man who managed Modi’s re-election so successfully as President of the BJP, he seems in a hurry to implement the social agenda. Indeed, that that the social and political agenda is more important than the economic one,” Wood wrote.

The Moslem population in India, according to the note, has grown from 9.8 per cent of the population in 1951 to around 15 per cent based on the latest estimates. “This trend is, presumably, not to the BJP’s liking,” the note adds.

The interesting issue though, according to Wood, is the extent to which Modi himself is personally committed to this social agenda. While Modi has certainly shown he is willing to stand up against the Rashtriya Swayamsevak Sangh (RSS) on the issue of selling down government stakes in public sector undertakings (PSUs) to rein in the fiscal deficit, Wood feels the RSS undoubtedly cares more about the social-religious issues than the economic ones. 

“”It will be interesting to see if Modi remains fully behind Shah. There is certainly no sign of any friction for now. GREED & fear has no insight save to note that pursuing it risks undermining his economic goals as well as damaging India’s image globally, an image Modi has invested a lot of time and energy promoting,” Wood wrote.

Earlier this month, Wood had suggested that the Indian economy was a victim of Narendra Modi government’s shock therapy since he assumed power in 2014 and conservative investors can assume that it may take four quarters more for it to rebound.

“The slowdown looks perhaps even more dramatic in nominal GDP terms, given the continuing weakness in inflation. Nominal GDP growth was only 6.1 per cent YoY in Q3-2019, the slowest growth rate since the first quarter of 2009 (Q1-2009). The Indian economy has continued to be impacted by the continuing ripple effects of the funding squeeze in the NBFC and related housing finance company space,” Wood had said.

In this backdrop, Wood had cut his weightage on India by 2 percentage points in his Asia Pacific ex-Japan relative-return portfolio. Among the Indian basket of stocks in his portfolio, Wood e replaced the investment in Godrej Properties with DLF.