This year’s elections mark one of the biggest moments for the South Asian country. That is because politicians cannot rely on the ‘traditional methods’ to win people over and get their votes as they used to, thanks to technology.
David Cornell, chief investment officer and managing director of asset management firm Ocean Dial, said during a briefing attended by International Adviser: “Technology is a major driver for change in India, and politicians can no longer hide behind a wall of misinformation or disinformation, bribing their voters every five years.”
In the latest polls, prime minister Modi’s party, the Bharatiya Janata Party (BJP), was still in the lead with approximately 222-232 seats.
However, it would still need at least 40 seats to gain the 272-majority required to form a government on its own.
Get the business class back on board
According to Cornell, Modi has alienated the Indian business community, even though it forms the core vote band for the BJP.
“He is going to have to bring the business community back into its vault in order to gain momentum and go forward.
What is the outlook for investors?
“The markets are pricing in Modi’s victory,” Cornell added. “That is on the assumption that Indians would vote for a leader that looks strong, with security being high on his agenda and protect the country from foreign entities.”
As a matter of fact, markets started leaning towards Modi’s victory since the first incidents of the India-Pakistan conflict.
“Should Modi be re-elected, the market would gain momentum,” he added.
Attracting foreign investors
Cornell believes that if the current prime minister were to win, one of his priorities should be to look appealing to foreign investors.
“Modi has got to attract foreign investment into the economy, he’s got to build manufacturing facilities. And that’s tough because state by state laws are very different, especially on how to attract foreign investment; either because laws are out f date or because of bribery and corruption.”
However, if he were to form a government, Cornell thinks that mid-cap stocks are going to be the ones to look out for.
“Mid-cap has underperformed large cap in India for the last 18 months by quite substantially. There’s a 30% deviation between the two; and we think that mid-cap Indian equities will see the real benefit.
“We think the rally will come in the lower end of the market.”
What if Modi loses?
Foreign investors do need to have a plan set in place in the event of a defeat for the BJP as well.
However, there will be opportunities to buy cheap stocks Cornell said.
“If Modi were to lose the elections that would mean cheaper stocks. The areas we like are consumer stocks.
“They are the hardest to buy because they tend to be the most expensive. So, if you have a big correction in that area of the economy that’s good, because shaving or shampoo products aren’t going to get affected by politics.
“But if you get a price shift, then that’s fantastic.”