Indian stock markets have surged after Prime Minister Narendra Modi yesterday won a landslide victory in the General Election. Read fund analysts' reactions here.
Holly Black: Welcome to the Morningstar series, "Market Reaction." I'm Holly Black. I'm joined now by Kaustubh Belapurkar, who is our fund research analyst in India for Morningstar.
Welcome to the studio.
Kaustubh Belapurkar: Hi, Holly.
Black: So, it's quite a big day in India, or quite a big week after six weeks of voting, 900 million people at the polling stations. Prime Minister Modi has got the second term in Office. Can you tell us a bit more about what's going on?
Belapurkar: So, it's been a very, very whirlwind last six to 12 months really and the incoming government with Prime Minister has been going through what I would define as a slightly rough patch through late last year where they actually lost some of the crucial key state elections. We had a run up at – the opposition was making a lot of noise about certain corruption deals. And also, there was a bunch of regional parties that came together and formed a sort of coalition leading up to the elections which was causing a lot of external noise for the government. So, even the markets were kind of unsure where it was going to go. But as the results of the exit polls came in and the actual results poured in, I think it's been a very, very impressive victory for the incumbent BJP government which has obviously taken the best of analysts by a very positive surprise.
Black: What's the initial reaction from the stock market been? I think the India stock market was near a record high this morning.
Belapurkar: So, if you look at the stock market – and I'll just maybe take a step back – as I was alluding to, the markets were kind of pricing in a marginal victory for the incumbent government. And when the exit poll results came out earlier this week, the markets actually zoomed by almost 3.5% pretty much pricing in a Modi government coming to the centerstage. And when the actual results were announced yesterday, the markets did zoom up quite significantly when we saw that the BJP government itself was going to get a simple majority. But there was a little bit of a reality check given that the Asian markets were sort of down and most of the global markets were down. So, they did, kind of, correct at the end of the day. But I think, generally, if you look at it, today the markets are again back up. So, the sentiment seems to be very strong having a stable government back in the center.
Black: So, what does this mean for anyone who is investing in an emerging markets or an India fund?
Belapurkar: So, now, sentiment aside, you obviously have a stable government. That is a huge positive for the markets. Because the government can now make good on their policy reform agenda, they can really push some good bills through and really get India back to their economic growth path. We've seen some major reforms that Modi took in his first term and they are yet to play out. And in fact, it did in fact a little of a tepid growth for the Indian economy. So, that needs to kind of now really bloom up completely and take the full course. So, that's something that's going to be pushed through very, very strongly by the Modi government starting very soon.
Obviously, there are a few other factors they need to take care of. Corporate profitability and revenue growth hasn't been that strong. So, hopefully, the government spending, corporate spending coming back should ideally help the markets really recognize some of that and markets should do well.
As an emerging market investor, I think the tone could be slightly different. India is obviously – from where we look at it, it's going to be one of the favorites amongst the emerging markets pack. But given the noise around some of the other exogenous factors between U.S. and China emerging markets as a pack could be slightly on a backfoot. But I think India amongst that pack definitely with the strong government coming in is going to be strong. But domestically, we think investors are going to return in a huge way given the confidence that's coming through for the economy with a strong government coming back.
Black: Fantastic. Kaustubh, thank you so much for your time. This is Holly Black for Morningstar. Thanks for joining us.
