Lok Sabha polls: Emerging-market bulls tout Modi premium


under Prime Minister Narendra Modi, Indian equities have commanded unprecedented premiums over emerging market peers. As he seeks a third consecutive term, investors are betting that performance can continue.
Modi is likely to spend heavily on manufacturing and infrastructure if he wins, a strategy that will continue to woo money managers during his decade in power. The stock market has consistently hit records, while India's imminent inclusion in a major global bond index is expected to woo people. Billions of dollars flow.
Andrei Stetsenko, a New York-based portfolio manager at Farley Capital, said voters were supporting a “pro-growth, pro-market agenda.” “To a greater extent than a decade ago, the company managements I meet feel that the government is on their side.”
Modi's 10 years in office have ensured political stability and policy continuity, helped reduce extreme fluctuations in asset prices and turned India into a preferred investment destination for global funds. The elections will begin in phases from April 19.
When the votes are counted on June 4, everything will depend on whether Modi's party wins a clear majority in the legislature. He has predicted more than 400 seats for his Bharatiya Janata Party and allies, although it remains to be seen whether voters' top concerns over lack of jobs and high inflation, as highlighted in a recent survey, will impact their popularity. Does it have any effect or not?
In 2019, the BJP-led alliance won more than 350 of the 543 seats in the lower house of parliament.
“Modi has unleashed India's potential,” said Mike Sale, head of global emerging equities at Alquity Investment Management Ltd. Investors like stability and clarity. A majority government versus an unwieldy coalition would certainly be better.
Here's an in-depth look at how Indian assets have performed under Modi:
equity premium
The average premium paid for Indian stocks by global investors instead of buying equities in other emerging markets rose to 54% during Modi's tenure, up from 30% during the previous government led by the Indian National Congress, data compiled by Bloomberg show. % Was.
By contrast, China's stocks have seen an average 4% discount to peers over the past decade, reflecting the changing fortunes of the world's two largest emerging markets.
In terms of absolute returns, the nearly 200% rise in the MSCI India index under Modi looks puny compared to the more than 300% rally the index has seen over the past decade.
Investor confidence in Indian markets still appears to be high under Modi, with volatility across asset classes decreasing. For stocks, the average 30-day volatility in the benchmark NSE Nifty 50 index declined to 13 points over the past decade, from 18.5 points in the previous comparable period, data compiled by Bloomberg showed.
“India offers strong protection on the downside in case of volatility,” said Vivek Dhawan, portfolio manager at Candrium Belgium NV. “In the last two-three years, there were a lot of headwinds – geopolitics, interest rates being high and all that – but that meant India's appeal increased because of lower volatility.”
rupee cool
While the Indian rupee has steadily depreciated during Modi's two terms, the currency's volatility has reduced in recent years, making it a favorite among carry traders.
The central bank has kept such a tight grip on the rupee that expected volatility based on option prices has fallen by the most in the world over the past decade. This is a big change from the last 10-year period, when the rupee was one of the most volatile currencies.
Currency stability in turn has boosted the attractiveness of the country's sovereign debt to foreign investors, with Indian bonds seeing their longest monthly streak of inflows in almost a decade before joining major global bond indices.
Bloomberg's gauge of India's benchmark sovereign bonds has delivered positive returns in all 10 years of Modi's tenure, and they will rise further if he retains power.
“India is challenging the EM wisdom of every two steps forward there is at least one step back,” Macquarie Group Ltd.'s Victor Shvets and Kyle Liu wrote in a note dated April 8. path, with low inflation, stable growth and low risk premiums.”

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