By Jonathan Schiessl
We are currently witnessing one of the modern world’s greatest achievements – the Indian general election.
India has a number of factors going for it: an increasingly positive demographic, an economy rapidly moving up the global rankings and a host of corporations gaining scale internationally – all of which make India a compelling investment proposition. And yet the last couple of years have seen much of the gloss of the India story fade.
Economic growth has been anaemic by recent standards. In February, India posted third quarter GDP growth of 4.7%, whereas most of the growth in the last decade averaged somewhere between 8-10%. We have also seen an acceleration in inflation and worsening fiscal and trade positions.
Adding to this, the corruption scandals surrounding the current ruling Congress party have hindered the government as well as affecting the investment sector. In an already infrastructure-deficient country this has been particularly damaging. The overall result was a fall-off in investment that subsequently stymied growth and government revenues, and crucially clouded growth expectations which are so necessary when planning corporate spending. But this should be about to change – India is in the midst of an election, the result of which could radically alter its future.
Over the last year positive developments have started to take place. The new finance minister and governor of the Reserve Bank of India have between them begun to instigate some policy actions that have at least put a floor under the current growth rates.
Elections in India are a marvel
This election is important for two reasons: firstly, the current administration has been particularly inept, for reasons already highlighted. The formation of any stable government from this election is likely to at least prod from slumber some of the capex side-lined due to sheer bureaucratic inaction or companies’ feeling of uncertainty. The second reason is simply Narendra Modi, the leader of the BJP party.
Many believe that Modi can put India back onto its rightful course through a combination of good governance, reforms and charisma: the Thatcher of India. He has been the chief minister of the state of Gujarat since 2001, during which it has rapidly outperformed other states in India. He is not however without controversy. Modi was the chief minister in 2002 when religious riots broke out in Gujarat killing over 1,000 people, mostly Muslims. Turning the Muslim vote his way will be a significant hurdle.
The BJP campaign is very much centred around Modi and his strong economic credentials. He has vowed to bring to the rest of the country his economic expertise and strong growth bias. We are even hearing his economic philosophy being called “Modinomics”. If he does become the next PM, he will face daunting expectations.
Positioning our investments in India ahead of the imminent election results
Trying to second-guess the Indian electorate is a fraught strategy at the best of times. Experience has taught us that. From an equity perspective, we prefer to stick to our philosophy and process when selecting companies to invest in, rather than speculating which company will benefit more from whatever election outcome. If Modi posts a convincing victory and subsequently delivers on his economic agenda, then we’ll certainly have to factor that into our considerations, as will the rest of the world.
Jonathan Schiessl is head of equities at Ashburton Investments
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