Does India's Election Signal an Upturn?

While the Congress party led coalition strong showing is heartening, it does not in my view signal a dramatic change in economic and market prospects.

First, India’s market had already made a nice run in 2009 and valuations relative to other markets are not compelling. The SENSEX index now trades at a hefty premium to other emerging markets and has rallied 75% from its recent low in just over two months.

Second, these gains and valuations are against a backdrop of a weakening economy and financial shortfalls with economic growth rates estimated to fall from 9% to less than 5% according to some analysts. The first budget, due in July, will puncture any sense that financial pressures will lessen going forward.

Third, and most importantly, the impact of the election on the key market reforms needed to significantly improve India’s economy are at best minimal due to the nature of the election. I do believe that great bull markets are often ignited by elections based on significant mandates for growth-oriented change. But this election was about personality, the extreme positions of the opposition and business as usual.

The continued premiership of Manmohan Singh, 76, is a source of stability and serenity when what India really needs is sustained and substantial reform. Does the election make this more probable? To answer this we need to look underneath the recent campaign to examine the source of the Congress party electoral gains.

Much credit needs to be given to the efforts of Rahul Gandhi, 39, the son, grandson and great-grandson of Indian prime ministers. He vigorously and to great effect campaigned in areas where the party has traditionally been weak. But what was his message? With barely a nod to the importance of growth and need for market reforms, it was the usual bromides on social justice and the need to protect India from the pitfalls of global capitalism.

In fact, while it was common to hear over the last five years that reform was being stymied by the leftist wing of the ruling United Progressive Alliance, it was the Nehru-Gandhi power base led by Sonia Gandhi who opposed many market reforms and bragged about nationalizing the banks.

It doesn’t seem to me that there is any new mandate for positive change despite a situation that cries out for more competition, private financing of infrastructure such as power, streamlining bureaucracy, fighting corruption, vastly improving primary education and making labor markets more flexible.

Comments

[Econ Base:]

"Much credit needs to be given to the efforts of Rahul Gandhi, 39, the son, grandson and great-grandson of Indian prime ministers"


I cannot understand why a country of billion plus people cannot find political talent outside the dynastic rulers. Something is fishy. Where are the Obama's (highly educated left) and John MacCain's (patriotic right) of India?

May 31 12:58 PM

[NikB:]

the author has a very poor understanding of indian politics and governance..lets hope he's smarter with his money..

Jun 01 06:17 AM

[HaavBline:]

I have read other analysis with similar doubts about the mandate of this election.

If you have a good understanding of Indian politics, why don't you elaborate?


On Jun 01 06:17 AM NikB wrote:

> the author has a very poor understanding of indian politics and governance..lets
> hope he's smarter with his money..

Jun 03 01:32 AM

[NikB:]

the current dispensation in india is the same bunch of guys that set off the reforms process in the first place in 1991, this is the same prime minister that signed the civilian nuclear deal with the US, risking his government in the process..alluding to rahul gandhi as a socialist are not well researched..in his press conferences during the election campaign he stated that the left parties want equitable growth but dont know where the resources will come from..it is important to have equitable growth and that is going to be the policy direction of this government..action on refroms is always incremental and more so in democracies..the election mandate needs to be looked at in light of a series of state legislative election results that came prior to the federal government election...state governments that combined a social agenda with growth have been voted back to power..it essentially shows a maturing of the indian electorate for the first time since independence... a re-election to parliament is now not necessarily predicated on communal or casteist configurations as was the case in the past....in that sense it is a HUGE GAME CHANGER.... those who wonder about india's valuations will never be able to own it... if u keep looking at indian as an enhanced beta play u will be left out forever..between the S&P at 15x and the sensex at 15x..i would pick the latter over the next decade any day!!


On Jun 03 01:32 AM HaavBline wrote:

> I have read other analysis with similar doubts about the mandate
> of this election.
>
> If you have a good understanding of Indian politics, why don't you
> elaborate?

Jun 05 05:36 AM