Insight

India equities' post-election outlook

India equities' post-election outlook

The event:  India election results concluded

India's 2024 general elections concluded on June 4.

Narendra Modi's Bharatiya Janata Party (BJP) won only 240 seats in the general elections, which was lower than its performance in 2019 and less than market expectations.1

However, the National Democratic Alliance (NDA) – the political alliance led by the BJP – won a majority by securing 290 seats, surpassing the halfway mark of 272. 1

While BJP-NDA alliance is set to form government for the third time, the margin of victory is narrower than expected. 2

The Indian market was volatile in these few days, the Nifty 50 and SENSEX rebounding by +3%3 after dropping more than -5%4 yesterday. We anticipated that the Indian market may continue to experience some near-term noise until the formation of the new government cabinet in the next few days.

Investment implications

The formation of the new government should happen in the next few days. We will closely monitor the cabinet formation and upcoming government's budget announcement in July.

While the victory of Modi is narrower than expected, their ruling party is still in majority, therefore we believe the ongoing reform and policies shall continue.

We anticipated policy continuity in India, as evidenced by the Prime Minister's post-election speech, where he reaffirmed the government's commitment to support the electronic manufacturing, semiconductor, defense, green energy, EV, and digitization sectors, coupled with efforts to make India the third-largest economy in the world.

Fundamentally, India remains in good shape, with positive high-frequency data and an estimated GDP growth of 8.2% for FY24.5

We believe it is crucial to continue focusing on our bottom-up, fundamentally-driven stock selection approach, as this is much more important in the current market environment.

Investment themes – India’s multi-year secular growth

Consumption explosion

We are witnessing an inflection point for discretionary consumption in India, as the middle class expands and their purchasing power increases. This shift towards discretionary spending is expected to drive sustained growth in various sectors.

We believe India is poised for a consumption explosion, supported by a rising population and growing GDP per capita.

Domestic-oriented sectors like transportation, hotels, jewelry, and automotive are expected to benefit from the rising incomes of Indian consumers.

Manufacturing renaissance 

The government's commitment to attracting investments and promoting domestic manufacturing, exemplified by initiatives like Make in India and Production-linked Incentives schemes, further solidifies the positive outlook for India's manufacturing sector.

India has successfully cultivated a manufacturing renaissance, positioning itself as a key global partner and benefiting from worldwide supply chain relocation. Global dynamics have encouraged multinational companies to expand production and establish factories within India, further bolstering the country's manufacturing capabilities.

Financial transformation

India's financial transformation, fueled by increasing digitalization, presents significant growth opportunities for the country. As more individuals gain access to digital services and financial inclusion expands, it paves the way for enhanced economic participation and consumption, further boosting India's overall growth trajectory.

The rise of e-payment systems, retail credit, and global business services hubs have been tangible manifestations of this financial transformation.

We believe the continued advancement of India's digital financial infrastructure will pave the way for even greater growth within the financial services industry.

Reference:

  • 1

    Bloomberg, 5 June 2024

  • 2

    Economic Times, 4 June 2024

  • 3

    Bloomberg, 5 June 2024 

  • 4

    Bloomberg, 4 June 2024

  • 5

    Reuters, 31 May 2024

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