As India heads towards national elections, the stock market cheers the potential end of the reign of the Congress… The upcoming election will likely have a big impact on whether, when and by how much Asia’s third largest economy will rebound… Investors believe Narendra Modi, the prime ministerial candidate from the Bharatiya Janata Party, will be a more decisive leader who will build infrastructure, fight corruption, push through long-delayed economic reforms and enliven growth.
Here’s a recipe to make Indian stocks investors happy: tie the hands of the ruling Congress-led Government and hint that the opposition Bharatiya Janata Party will be forming the next Government. India’s benchmark 30-share S&P BSE Sensex hit a record high recently of 21513.87 points, marking the third straight session of gains. As India heads towards national elections, investors have been following the twists and turns of the political world more closely in recent months. The upcoming election will likely have a big impact on whether, when and by how much Asia’s third largest economy will rebound. The country announced recently that the national polls will begin 7 April and be done by 16 May which has some optimists hoping that uncertainty about who will be leading the world’s largest democracy will be over in about two months.
Some investors have become frustrated by the ruling Congress party because they believe it has stalled reforms and delayed important investments in the close to ten years it has been in power. Instead, critics say, the Congress-party led coalition has focused on populist measures, including a Bill to provide almost free food to around two thirds of the population. One good thing about election season, investors say, is that Congress will not be able to announce any new perks for the poor. The Election Commission of India prohibits parties from launching welfare programs during the election process.
“The uncertainty is now over,” said Sharmila Joshi, an independent research analyst in Mumbai. “The market is (optimistic) that there won’t be any more populist measures.” Investors are taking heart from recent surveys that show that Bharatiya Janata Party-led National Democratic Alliance may be able to form a stable Government after the elections. Investors believe Narendra Modi, the prime ministerial candidate from the party, will be a more decisive leader who will build infrastructure, fight corruption, push through long-delayed economic reforms and enliven growth. Mr. Modi is perceived as being more business-friendly and decisive by the business community. Foreign investors, who are the biggest drivers of Indian stocks, feel a strong and decisive Government is crucial for India’s economy, which last year saw its economic expansion taper to a ten year low. “Pre-election surveys are indicating a victory for NDA, which the market favors,” said Jigar Shah, head of research at Kim Eng Securities.