What are FIIs saying on BJP's Gujarat poll victory
, ET Bureau|
Updated: Dec 19, 2017, 10.08 AM IST
The BJP on Monday maintained its stronghold in Gujarat and also won elections in Himachal Pradesh. Here's what FIIs are saying about Indian markets after the BJP's victory:
Gary Greenberg, head of emerging markets, Hermes Investment Management
We see the results as a moderate affirmation of Modi’s policies, in light of the difficulties some small traders and businessmen faced as a result of demonetization and the GST. As the frictional effects of these fade, the economy, the BJP’s prospects, and the market are likely to strengthen. There is a reasonable chance of increased fiscal spending, especially in rural areas, but hopefully the GST will also increase government revenues, avoiding a big deficit miss. As NPLS are recognized and written off, and as PSU banks are recapitalised, we expect lending to resume, and economic activity to pick up. This should mean better margins for Indian companies and rising earnings estimates. With a more buoyant earnings outlook, the Indian market can continue its strong performance.
Geoff Lewis, Global Strategist-Capital Markets Group, Manulife Asset Management
That the Gujarat election would be closer than last time was not unexpected. It was never going to be a 'walk-over' for the BJP. Foreign investors will see the result as a reminder to Modi not to rest on his laurels, but to continue to move forward with his policy and reform agenda. Losing ground in Gujarat should act to focus CG on push ahead with key policies, but also of the necessity of working as closely as possible with the governments of India's key states. After another disappointing year for results, if India is to do well in 2018 it is vital that earnings forecasts are met. That is almost the only criteria that Indian stocks will be judged on in 2018.
Shiv Puri, Managing Director, TVF Capital Advisors
The market is pricing in continuity in government and policy beyond 2019 and any change in that narrative will be a negative surprise for the market. At this juncture, it is not yet a meaningful risk and do not expect this election result to have any significant bearing on the Indian markets or foreign flows into the country. Historically, the government tends to become more populistic in the 12 months leading to a general election and this will likely happen regardless of the Gujarat elections results. The bigger issue is the progress being made on the long-term transformative initiatives such as 1) improving the ease of doing business in India (India’s ranking improved by 30 places to 100 in 2017), 2) make-in-India and 3) increasing transparency in the economy by focussing on tighter integration of the Aadhar identity system with financial transactions. Returns going ahead will have to be driven by an acceleration in earnings growth trajectory.
Jan Dehn, Head of Research, Ashmore Group
Foreigners will welcome the results even though Modi did not do as well as expected. This is a continuity result, but one that also shows that Modi has paid a price for reforms. Modi must now focus on ironing out the remaining teething problems with GST and then step up capital spending. He should also continue with the recapitalisation of banks. I do not see any major new reforms between now and 2019. The overall macroeconomic policy will remain prudent. It would be a major mistake to sacrifice macroeconomic instability at a time when past reforms about just about to bear fruit. Patience is going to be rewarded. The reforms of the past few years should ensure that the expansion is sustainable and that India achieves a higher trend growth rate than was possible before reforms.
Gary Greenberg, head of emerging markets, Hermes Investment Management
We see the results as a moderate affirmation of Modi’s policies, in light of the difficulties some small traders and businessmen faced as a result of demonetization and the GST. As the frictional effects of these fade, the economy, the BJP’s prospects, and the market are likely to strengthen. There is a reasonable chance of increased fiscal spending, especially in rural areas, but hopefully the GST will also increase government revenues, avoiding a big deficit miss. As NPLS are recognized and written off, and as PSU banks are recapitalised, we expect lending to resume, and economic activity to pick up. This should mean better margins for Indian companies and rising earnings estimates. With a more buoyant earnings outlook, the Indian market can continue its strong performance.
Geoff Lewis, Global Strategist-Capital Markets Group, Manulife Asset Management
That the Gujarat election would be closer than last time was not unexpected. It was never going to be a 'walk-over' for the BJP. Foreign investors will see the result as a reminder to Modi not to rest on his laurels, but to continue to move forward with his policy and reform agenda. Losing ground in Gujarat should act to focus CG on push ahead with key policies, but also of the necessity of working as closely as possible with the governments of India's key states. After another disappointing year for results, if India is to do well in 2018 it is vital that earnings forecasts are met. That is almost the only criteria that Indian stocks will be judged on in 2018.
Shiv Puri, Managing Director, TVF Capital Advisors
The market is pricing in continuity in government and policy beyond 2019 and any change in that narrative will be a negative surprise for the market. At this juncture, it is not yet a meaningful risk and do not expect this election result to have any significant bearing on the Indian markets or foreign flows into the country. Historically, the government tends to become more populistic in the 12 months leading to a general election and this will likely happen regardless of the Gujarat elections results. The bigger issue is the progress being made on the long-term transformative initiatives such as 1) improving the ease of doing business in India (India’s ranking improved by 30 places to 100 in 2017), 2) make-in-India and 3) increasing transparency in the economy by focussing on tighter integration of the Aadhar identity system with financial transactions. Returns going ahead will have to be driven by an acceleration in earnings growth trajectory.
Jan Dehn, Head of Research, Ashmore Group
Foreigners will welcome the results even though Modi did not do as well as expected. This is a continuity result, but one that also shows that Modi has paid a price for reforms. Modi must now focus on ironing out the remaining teething problems with GST and then step up capital spending. He should also continue with the recapitalisation of banks. I do not see any major new reforms between now and 2019. The overall macroeconomic policy will remain prudent. It would be a major mistake to sacrifice macroeconomic instability at a time when past reforms about just about to bear fruit. Patience is going to be rewarded. The reforms of the past few years should ensure that the expansion is sustainable and that India achieves a higher trend growth rate than was possible before reforms.
