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Indian stocks fell the most in over four years (per Reuters), as the vote counting is underway, with initial trends suggesting that the Modi-magic seems to be fading. The opposition INDIA gaining ground in the Lok Sabha elections over its 2019 tally, way higher than Street expectations.
While Modi’s party Bharatiya Janata Party (BJP)-led NDA was leading with 297 seat counts (at the time of writing), INDIA was catching up with 227 seats in early trends, up 82 seats over its 2019 tally. In contrast, in 2019, the NDA won 353 seats. And 272 seats are required to form the government.
The biggest disappointment for the market is the fact that BJP alone does not have a majority, which could cause some disorder into governance. And the overall NDA alliance numbers are well short of the landslide victory predicted in exit polls.
Analyst Perspectives
Before the election counting, the polls suggested the Bharatiya Janata Party-led alliance will grab substantially more seats. And analysts expected the continuation of reform-driven policies, contributing to a higher trend growth path for the Indian economy.
Elara Securities said empirical evidence suggests election years are positive for the equity markets. In each of the past four election years, the Nifty 50 has given an average return of 32%, with significant contribution coming from post-election returns, as quoted on Business Today.
Per Elara Securities, pre-election performance may be varied, post-election rallies have historically been broad-based, resulting in positive returns across sectors. With the Nifty yielding 4% so far this year, there is upside potential left.
Foreign Investor Outlook May Not be Changed
Per Societe Generale SA’s Asia strategist, foreign investors have been concerned about Indian valuations, as quoted on Bloomberg. Even if the Modi forms the government, the predicted election results align with the outcome, potentially not altering foreign investment behavior significantly.
Bottom Line & ETFs in Focus
Overall, we expect a third term for the Modi government but with a strengthened opposition. From here, investors’ focus should be more on the economic growth and less on the politics. Many analysts view today’s pullback as a buying opportunity.
The India economy will continue to benefit from longer term tailwinds of favorable demographics and the ongoing geopolitical tensions between China and the US, which could turn India into a new manufacturing hub.
"The only thing that a lower number than 300 for NDA will do is compel a rethink for the main party on policy approach so far and could mean policies to address K shaped recovery and hence positive for consumption sector," said Garima Kapoor, economist, Elara Capital, as quoted on Reuters.
ETFs like Columbia India Consumer ETF (INCO - Free Report) and WisdomTree India Earnings Fund (EPI - Free Report) have added 11.3% and 11.9% this year. However, ETFs like Nifty India Financials ETF (INDF - Free Report) and VanEck India Growth Leaders ETF (GLIN - Free Report) and EPI have lowest P/Es in India ETF group.
While EPI has returned handsomely this year, other undervalued ETFs like INQQ, INDF and GLIN have gained 3.5%, 3.6% and 8.9% this year. iShares MSCI India Small-Cap ETF (SMIN - Free Report) is also good pick here as it has returned 7.9% this year and has a moderately high P/E in the pack.
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Modi Mandate Falling? India ETFs in Focus
Indian stocks fell the most in over four years (per Reuters), as the vote counting is underway, with initial trends suggesting that the Modi-magic seems to be fading. The opposition INDIA gaining ground in the Lok Sabha elections over its 2019 tally, way higher than Street expectations.
While Modi’s party Bharatiya Janata Party (BJP)-led NDA was leading with 297 seat counts (at the time of writing), INDIA was catching up with 227 seats in early trends, up 82 seats over its 2019 tally. In contrast, in 2019, the NDA won 353 seats. And 272 seats are required to form the government.
The biggest disappointment for the market is the fact that BJP alone does not have a majority, which could cause some disorder into governance. And the overall NDA alliance numbers are well short of the landslide victory predicted in exit polls.
Analyst Perspectives
Before the election counting, the polls suggested the Bharatiya Janata Party-led alliance will grab substantially more seats. And analysts expected the continuation of reform-driven policies, contributing to a higher trend growth path for the Indian economy.
Elara Securities said empirical evidence suggests election years are positive for the equity markets. In each of the past four election years, the Nifty 50 has given an average return of 32%, with significant contribution coming from post-election returns, as quoted on Business Today.
Per Elara Securities, pre-election performance may be varied, post-election rallies have historically been broad-based, resulting in positive returns across sectors. With the Nifty yielding 4% so far this year, there is upside potential left.
Foreign Investor Outlook May Not be Changed
Per Societe Generale SA’s Asia strategist, foreign investors have been concerned about Indian valuations, as quoted on Bloomberg. Even if the Modi forms the government, the predicted election results align with the outcome, potentially not altering foreign investment behavior significantly.
Bottom Line & ETFs in Focus
Overall, we expect a third term for the Modi government but with a strengthened opposition. From here, investors’ focus should be more on the economic growth and less on the politics. Many analysts view today’s pullback as a buying opportunity.
The India economy will continue to benefit from longer term tailwinds of favorable demographics and the ongoing geopolitical tensions between China and the US, which could turn India into a new manufacturing hub.
"The only thing that a lower number than 300 for NDA will do is compel a rethink for the main party on policy approach so far and could mean policies to address K shaped recovery and hence positive for consumption sector," said Garima Kapoor, economist, Elara Capital, as quoted on Reuters.
ETFs like Columbia India Consumer ETF (INCO - Free Report) and WisdomTree India Earnings Fund (EPI - Free Report) have added 11.3% and 11.9% this year. However, ETFs like Nifty India Financials ETF (INDF - Free Report) and VanEck India Growth Leaders ETF (GLIN - Free Report) and EPI have lowest P/Es in India ETF group.
While EPI has returned handsomely this year, other undervalued ETFs like INQQ, INDF and GLIN have gained 3.5%, 3.6% and 8.9% this year. iShares MSCI India Small-Cap ETF (SMIN - Free Report) is also good pick here as it has returned 7.9% this year and has a moderately high P/E in the pack.