India’s benchmark stock index will climb as much as 6 percent to a record by year-end if state election results this weekend confirm gains by the nation’s main opposition party, according to a Bloomberg survey.
Victories by the Bharatiya Janata Party in four of five states that held elections over the past month, a prelude to national voting next year, would send the S&P BSE Sensex index to almost 22,200 from its closing level of 20,957.81 yesterday, according to the average of 10 estimates compiled by Bloomberg.
An exit poll Dec. 4 signaled the BJP, which picked Narendra Modi as its choice for prime minister, will win four states.
Modi’s home state of Gujarat has recorded annual economic growth of 10 percent, lured investments by companies from Ford Motor Co. to the Tata Group and raised power generation capacity more than fivefold since he became chief minister in 2001.
India’s economy posted its slowest growth in a decade last year and suffered its worst power crisis in July 2012, eroding investor confidence in the leadership of Prime Minister Manmohan Singh’s Congress party.
“Investors are extrapolating what Modi did in Gujarat, betting he will be able to replicate that at the national level,” Paras Bothra, vice president for equity research at Ashika Stock Broking Ltd., said in an interview yesterday.
Narendra Modi is benefiting from India’s declining GDP growth and the corruption charges levelled at the Congress Party. Nevertheless, Modi’s economic record of 10 percent GDP growth per annum since he became Chief Minister in 2001 is exceptionally impressive, as is the fivefold increase in power generation capacity mentioned above.
It is difficult to envisage that performance being replicated across India’s widely diversified states if Modi is elected as Prime Minister next year. Nevertheless, it is a welcoming message for many Indians, not least educated younger voters.
We will know the final election results over the weekend. Nevertheless, Modi’s strength in the exit polls enabled India’s Sensex Index (weekly & daily) to open 6% higher on Thursday, before settling back for what was still a substantial gain. Governance is Everything, not least in emerging markets. My hunch is that without the probability of Modi’s election victory next year, India’s stock market will fall back from historic resistance next year and underperform. However, if Modi remains the frontrunner and wins, India should be one of the top performers over the next few years.
(See also Wednesday’s lead article)Back to top