India heads to the polls

The general elections in April-May this year carry profound implications for the Indian economy and equity markets. Prime Minister Narendra Modi is seeking a third term in office and following his Bharatiya Janata Party’s (BJP) strong performance in the recent state elections, he is widely expected to triumph. The anti-BJP opposition Indian National Developmental Inclusive Alliance (often referred to as the "I.N.D.I.A.") was not very active in the recent state elections and it has not yet been able to formulate a seat-sharing plan for the national elections. 

Modi is popular (enjoying an approval rating of 60-70% during his tenure) and remains a key factor in the BJP’s prospects at the ballot box. A win for the BJP would be positive for market sentiment because it would encourage political stability and lead to the continuation of Modi’s reform programme. Key reforms under his government include a combination of ‘bottom-of-pyramid’ policies (financial inclusion, direct benefit transfers, electricity for all); tough economic reforms (a nationwide goods-and-services tax that creates a unified domestic market; corporate tax cuts, a real-estate regulation act, a bankruptcy code, digital reforms, and a privatisation programme) and sensible fiscal imperatives (record government capex, investment in infrastructure and incentives to encourage manufacturing). 

A continuation of the incumbent government should provide continuity in policies, offering stability and predictability to investors. Key economic issues such as fiscal management, infrastructure development, taxation, and job creation feature prominently in election campaigns. Furthermore, the outcome of the elections could influence foreign investor sentiment towards India. A clear electoral mandate and a government perceived as pro-business and investor-friendly will likely attract foreign investment inflows, supporting equity markets and bolstering economic growth.