By Tsering Namgyal
Senior Adviser, Advise Insight
India’s just concluded elections, in which the ruling BJP failed to gain majority, came as a shock and led to a plunge in the country’s stock markets. Even more shocking was how no one was able to predict the results of the elections. Indian stock markets have been on a tear over the past few years on the back of the rising economy and that the hopes that the BJP will continue to win a majority in the parliamentary elections. While Prime Minister Narendra Modi has lost its aura of invincibility post-polls, the BJP was able to cobble together a majority with the help of its coalition partners. The markets also rose prior to the elections based on the exit polls which predicted a landslide victory for the BJP, only falling after the announcement of the actual results, triggering concerns about market manipulation. One big lesson from India’s election results is that geopolitical risks are much harder to predict and can be volatile and the investors should never ignore them. Moreover, Indian stock markets remain overvalued and foreign investors have been selling Indian shares (mainly buying into China where the shares are much cheaper).
The current correction in the markets, however, should provide long-term investors with an opportunity to accumulate Indian shares and bonds. Modi was already sworn in his third term as a Prime Minister along with his council of ministers. The good news is that the most of key portfolios will continue to be held by the same personalities that have provided the government stability in the past: Ministry of the External Affairs, Ministry of Home Affairs, Ministry of Finance and Corporate Affairs, and Ministry of Defence and Ministry of Road Transport and Highways, indicating a continuity of BJP’s policies. But concerns persist about the future of Indian conglomerates such as Ambani and Adani that are seen to have benefitted from what is perceived to be their good ties with the Prime Minister Modi. It is too early to say what will happen but the latest election results show that the Indian markets continue to remain uncertain and rife with risks, from the point of view of politics, economics and corporate governance perspectives. Investors better move with caution.
The recent shock election results indicate that investment success in India requires risks assessment and due diligence advisory.
Contact Advise Insight Ltd to learn how to manage risks in India markets.