Despite the BJP unexpectedly falling short of a majority in India’s general election in June, by forming a coalition government, Narendra Modi remains PM for a third consecutive term, says Abhinav Mehra, co-manager of the Chikara Indian sub-Continent fund.
The result puts India in a unique position of stability on the global investment front.
Around half the world will have gone to the polls in 2024, with significant elections taking place across more than 60 countries.
It’s voting on an unprecedented scale. The situation is made all the more precarious by the fact pivotal elections hang between parties with very different ideologies.
This summer we have seen a swing to the left in the UK, Germany moving to the right and a hung parliament in France. Who knows what the fallout from the US presidential election will be?
Such questions cast a huge shadow over the direction of policy and make it very difficult to make investment decisions.
In contrast, we now have visibility for at least the next four years Modi remains in power in India. The investment opportunities that emerged under the last BJP government will not only remain in place but should continue to flourish.
Here’s four we’re keeping our eyes on in particular:
1. Riding the property boom
Billions of dollars in infrastructure spending, global leading economic growth, and rising disposable income have rejuvenated property transactions. In 2023, sales of residential units in India’s seven biggest cities rose by nearly a third to their highest ever level.
House prices are also heading north after decades of stasis. Average prices in India’s top eight cities rose 10% year in Q1 2024 alone. Nationwide, they rose by 4.3% in 2023.
It’s been an excellent backdrop for India’s property developers. Godrej, for example, has been trading around record highs for much of 2024, having delivered record sales in 2023.
India is likely at the beginning of the upward side of a multi-year property cycle. With the PM prioritising “housing for all” during his campaign, and with India’s mortgage to GDP ratio remaining well below global peers, prices and sales volumes are positioned to rise.
2. Simplifying the business environment
Modi has been on a campaign of casting aside India’s legacy of excessive bureaucracy for much of the 21st Century.
We’ve seen big steps forward, with trade policies simplified, corporate governance codes reformed, and shifts towards deregulation and privatisation.
The latest, ongoing phase is one of cutting red tape on a sector-by-sector basis. Again, there have been inroads here. Coca-Cola recently announced plans to invest $1bn a year into India to capitalise on its simplified operating environment.
With Modi committing to replacing a “culture of red tape” with a “red carpet” for investors in February, we expect to see further steps forward during his current term as PM. This should have a positive impact on foreign investment and the bottom line of many domestic stocks.
3. Clearing up the courts
The number of cases caught up in India’s justice system crossed the 50-million-mark last year.
Evidently, not enough has been done to speed up the rate at which disputes are resolved. But the pace at which this is addressed through reform could be set to accelerate.
India’s chief justice called for a total revamp on the approach to dealing with the structural issues plaguing India’s courts in January.
Modi has also emphasised his belief in the need to “rethink, reimagine, and reform” legal systems during his campaign trail.
What that will involve remains to be seen. But any move towards a system where business disputes are handled in months rather than years will be a big tick in the box for foreign investors.
4. Re-evaluating the private banks
Under Modi, India’s private banks have been benefitting from increasing general demand for financial services among a growing, wealthier population. They’ve also been consolidating an increasingly large share of the Indian market from their public sector peers.
HDFC Bank, India’s largest private sector bank by assets, delivered a 37% year-on-year growth in profits in Q4 2023. Likewise, private lender Kotak Mahindra reported an 18.2% jump in its profitability for the same quarter.
Yet, despite their clear fundamental strength and the fact they are trading near to record highs, both stocks remain remarkably undervalued relative to their history.
We expect private banks to continue consolidating and strengthening throughout Modi’s latest term increasing the likelihood of a significant re-rate.
A promising outlook
Policy uncertainty – whether from anticipation of upcoming election results or the fallout from a vote now complete – is reducing the visibility of markets the world over.
India offers a clear path under a familiar leader whose policies have already led numerous large investment opportunities to emerge, and we expect that another four years of Modi’s leadership will offer investors outsized returns from a wide variety of sources.
By Abhinav Mehra, co-manager of the Chikara Indian sub-Continent fund
