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India's Surprising Election Results

|Includes: EPI, PowerShares India Portfolio ETF (PIN)

 

Like apparently everyone else including the victorious Congress Party, I am surprised and pleased by the election results in India. I believe that in general it shows two things.

 

First, it is almost impossible to accurately predict political outcomes, which is another reason why you should avoid state capitalist economies like China. No one knows what is coming next.

 

Second, do not underestimate the power of the electorate (like shareholders) to actually elect a bunch of politicians, who actually might just represent the entire country and institute reforms which help everyone and not just themselves.

 

That said, India still has a massive deficit and it will be very difficult for even the best government to institute reforms specifically like limiting wasteful subsidies for oil and fertilizer. Still for the short term, things do look optimistic. India began to grow when it reformed its laws (the license Raj) under Singh 18 years ago. Perhaps he now enjoys a sufficient mandate to perform a similar miracle.

 

I would not predict a massive bull market with an immediate return to the previous highs. However, the election results do make investing in India a far more predictable and a much safer bet. As risk decreases, investors should, over time, gain more confidence in the system and rewards will increase.