How India’s Narendra Modi Moves Markets

On the whole, markets in India love Indian Prime Minister Narendra Modi, but betting on the stock exchange solely guided by his announcements and reforms isn’t necessarily a winning strategy for investors…


how-india-narendra-modi-movMr. Modi has been in power for five months, during that time not every major announcement by his Government has impacted stocks, and some even led to a decline in the value of the Sensex. This is partly because markets often move on expectations rather than an event. For instance, in hope that Mr. Modi would become Prime Minister, the benchmark stock index S&P BSE Sensex rose 571.61 points or 2.4% to 24,693.35 in the week before he took office on May 26. But the index lost 476 points or 1.9% to 24217.34, in the week following his appointment.
Also, markets respond to many masters, including factors like economic data, global geopolitics, the movement of the U.S. dollar and so on.
Here’s how the markets reacted to some major announcements made by Mr. Modi and his Government since his appointment in May.

May 27-28: Attacking black money.
One of Mr. Modi’s first steps as Prime Minister was to create a special investigation team to track India’s “black money”, which is basically wealth on which taxes have not been paid. According to one estimate, black money could total $500 billion in India, and if brought into the country’s official financial system, it could be a boon for the economy. But markets were not swayed by this. The Sensex rose just 6.58 points, or .027 per cent, a day after the announcement, to 24556.09.

July 10-11: Budget.
This was the new Government’s first financial statement, laying out its intentions for spending and raising funds for the rest of the financial year. Stocks had moved up ahead of the budget in anticipation of far-reaching reforms, but the budget itself didn’t get investors excited. The Sensex fell 420.26 points, or 1.65 per cent on the day of the budget and the following day, to 25024.35.

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Aug 6-7: More FDI in Defense, Railways
The Modi Government approved an earlier proposal to increase foreign direct investment caps in India’s defense and railways sectors. While investors typically clamor for greater foreign investment, given the expected nature of this announcement, the market’s shrugged the announcement. The Sensex fell 319 points or 1.23 per cent on the day of and following the announcement, to close at 25,589.01 on Aug 7.

Aug 18-19: Independence Day
Mr. Modi gave a rousing speech on India’s Independence Day on August 15, which included announcements about streamlining Indian bureaucracy, and boosting manufacturing in the country. This fired up investors, and sent the Sensex to a new record high. The index rose 317.44 points, or 1.22 per cent, in the two sessions after Independence Day holiday weekend.

Aug. 28: Bank Accounts for All
Mr. Modi launched an ambitious program to provide bank accounts to millions of people without access to the formal banking sector. Stocks rose 229.44 points or 0.86 per cent, on the first trading session after the announcement, but that was mainly on data that India was growing strong.

Aug. 30 – Sept. 3 Modi Visits Japan
Japan committed to invest around $35 billion in India over five years during Mr. Modi’s visit to that country. The Sensex rose at this time, but investors were reacting mainly to strong economic growth data, which showed that India grew at the fastest pace in two years in the quarter ended June.

Sept 17: Chinese President Visits India
During a three-day visit to India, Chinese President Xi Jinping committed to invest around $20 billion over five years. Stocks rose, partly on enthusiasm of Chinese investments but also because the U.S. Federal Reserve indicated that it wasn’t planning to raise interest rates any time soon.

Sept. 25-29: Make in India/U.S. Visit
In late September, the Indian Prime Minister met major Indian business people and wrote an oped in ‘The Wall Street Journal asking businesses to manufacture in India. The Sensex jumped the day after this announcement, gaining nearly 158 points or 0.6 per cent, but analysts attributed the gain largely to a change in outlook by Standard & Poor’s. The credit rating firm said on September 26, that it was upgrading India’s long-term ratings outlook from negative to stable, which means it was less likely to be downgraded. That weekend, Mr. Modi also addressed the Indian-American community in New York, but stock markets shrugged off that event as he didn’t say much that was new. When markets reopened the following Monday, the Sensex lost 29.21 points of 0.11 per cent to close at 26597.11.

Oct. 16: Labor reform
In October, Mr. Modi announced steps toward reforming India’s labor laws, something that businessmen say have made it difficult to do operate inIndia. “These steps may seem small, but they will amount to big changes,” Mr. Modi had said in a speech. This is good news in general for India, but stocks fell because of a weakness in other major global markets. The Sensex lost nearly 350 points, or 1.3 per cent, on Oct 16, to close at 25,999.34.

Oct. 19-23: Diesel Freed, BJP Won Majority in State Elections
In October, the Government lifted state control on the price of diesel, a step that is expected to free up billions of dollars that could be spent by Indiaon other programs.Also, Mr. Modi’s party, the Bharatiya Janata Party won the majority of seats in two State elections, including Maharashtra, India’s financial hub. Stock investors cheered this move. The Sensex rose 321.32 or 1.23 per cent, when markets reopened after these announcements that were made on the weekend. In the four trading sessions up to market close for Diwali holidays, the Sensex gained 742.52 points, or 2.8 per cent to 26,851.05.

– WSJ

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