22nd May 2014
By Mark Dampier
The sixteenth general election in India, the world’s biggest democracy, has produced a landslide victory for the conservative Bharatiya Janata Party (BJP). Narendra Modi is due to be sworn in as Prime Minister on Monday.
1984 was the last time one party won a clear majority. This is a clear mandate for change, driven by young voters (of 814m eligible to vote, more than 100m were first time voters, and they voted for the BJP in droves).
The Indian stock market has risen strongly as a result of the election, with the headline SENSEX index trading near record highs in the past few days. However, Avinash Vazirani, manager of the Jupiter India Fund, forecasts the best is yet to come.
He believes the result is a ‘game changer’, and that the BJP’s pro-business policies mean the Indian market could be set for a three-to-four year bull run. Avinash Vazirani believes Modi is a great administrator and a strong leader, and there are huge expectations that he can transform the country’s economy.
He has a clear focus on infrastructure and development – especially water, power and sanitation, areas in which India have fallen behind developing-world peers. He is also expected to set out a very pro-business agenda, including a simplified tax code and clear guidelines so companies can plan ahead.
His plans follow the so-called ‘Gujurat model’ – named after the Indian state of which Modi has been Chief Minister since 2002. During his tenure the Gujurati economy, and with it per-capita income, has grown strongly.
However, the new administration also faces numerous challenges. Economic growth has fallen to a decade low of below 5%, and inflation is historically high. Corruption is widespread, and needs to be tackled if companies are to prosper.
Furthermore, investors’ expectations are so high that there appears little scope for disappointment. People are hoping for quick results, and if these fail to materialise then we could see a pull-back in share prices. Potential investors must bear in mind that as with all emerging countries, India’s stock market is volatile, and vulnerable to changes in sentiment so a long term horizon is essential to ride out the inevitable ups and downs.
Overall, Avinash Vazirani believes last week’s result marks a decisive change for India, and that a change in government could ignite the stock market as it has in Japan with the election of Shinzo Abe. Indeed he told me he has never been as excited about the prospects for its stock market in his career, adding that domestic investors have been sitting on the sidelines, meaning there is a wall of money waiting to be deployed.
Avinash Vazirani has a wealth of experience of investing in India, having managed equities in the region for two decades, building an excellent track record. We believe this fund is a superb choice for adventurous investors seeking to exploit India’s exciting long-term growth prospects. This fund features on the Wealth 150 list of our favourite funds across the major sectors.
Over the past 25 years, Andrew has held several key positions with major financial organisations including international life companies and asset management organisations.
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