Author: David Chao (Global Market Strategist, Asia Pacific)
The world’s largest democratic exercise has begun with 898 million registered voters expected to cast their ballot between 11th April and 19th May. The election is held every 5 years under a multi-party parliamentary democracy. Votes are simultaneously counted although no polling data is made public – however the market does obtain a sense of the final outcome, which should be clear by the last voting day.
Opinion polls indicate that the Bharatiya Janata Party (BJP) and it’s National Democratic Alliance (NDA) - a coalition of center-right political parties - is likely to retain majority control and form a government under the current Prime Minister Narendra Modi. The NDA had 336 seats / 38% votes in the 2014 election. The other serious contender is the opposition United Progressive Alliance (UPA) that is led by Rahul Gandhi – the UPA had 59 seats / 23% votes in the 2014 election. The economic policies for both parties do not widely differ.
The opinion polls suggest that the NDA will retain power but with a reduced majority. Opinion polls have been a good indicator of the direction of the final results and were accurate in the 2014 election. The recent run-up in Indian equities reflect the market’s expectations of a continuation of the current administration that is pro-business and trade.
Since February, there has been a turn-around in foreign institutional investment, with FII inflows of USD 6.5bn. This contrasts with the FII outflow of USD 4.8bn in 2018. Domestic investor sentiment has also rebounded, with March seeing a 5-month high of USD 1.4bn in discretionary flows following a declining trend since November 2018.
We expect continued upward momentum in Indian risk-assets as the political overhang is removed after the election with a continued Modi-led coalition.