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India’s Narendra Modi Locked In For Second Term

Indian Prime Minister Narendra Modi greets a crowd during a campaign stop in Varanasi, India on April 25, 2019. He will keep his job. (AP Photo/Rajesh Kumar Singh) photo credit: ASSOCIATED PRESS

India’s long election season is drawing to a close, and it looks like the party of Prime Minister Narendra Modi did better than anyone expected. In other words, Modi is staying put just as the market expected.

The BJP party looks set to maintain its majority in the lower house of congress, s the Lok Sabha, with exit polls suggesting Modi’s party might have won even more seats than it had before.

Exit polls are predicting a clear majority to the BJP-led National Democratic Alliance, a coalition of political parties. Some polls say the party will hold over 300 seats out of the total 542 seats in the Lok Sabha. The Modi coalition is also seen making gains in five states.

India Today newspaper exit polls are forecasting a landslide win for the BJP-led alliance with over 350 seats . Other polls suggest a much lower count, but even a lower count would not be enough to give the Indian National Congress party a win. Narendra Modi is back. Results will be made official on Thursday.

India stocks are up, though a Modi win is no surprise.

A sign for the Bombay Stock Exchange (BSE) is displayed next to a bronze bull statue at the entrance to the BSE building in Mumbai, India. Equities may not rally much on a Modi win, says Matthews Asia. Photographer: Dhiraj Singh/Bloomberg

© 2016 Bloomberg Finance LP

The Sensex settled 0.36% today and the Nifty 50 settled 0.25% higher. The Wisdom Tree India (EPI) exchange-traded fund was lower on Wednesday, underperforming the rest of the emerging markets.

Since the middle of 2018, Modi’s coalition has suffered setbacks in state elections and has witnessed the growing reversal of political party fragmentation that allowed it to dominate the 2014 election. Early indicators suggested Modi had lost momentum and his coaltion would be weaker, holding onto a simple majority. Foreign investors in India were expecting this, so if BJP surprises and blows everyone out of the water, India’s stock market should rise.

It just might not go up all that much.

“The risk is that renewed high expectations and elevated market multiples have added to the market premium that set in after the 2014 election,” says Sriyan Pietersz, an investment strategist with Matthews Asia. “A better-than-expected result may result in only modest upside.”

Narendra Modi and the country’s main opposition Congress party President Rahul Gandhi during press conferences in their respective party headquarters in New Delhi, India, Friday, May 17, 2019. The last phase of the seven-phased Indian general elections was held on May 19. Official results are coming on Thursday May 23. (AP Photos/Manish Swarup, Altaf Qadri) photo credit: ASSOCIATED PRESS

India has been drama-free for years, with market attention focused on Russia sanctions, China trade wars and a radical shift in governments in Brazil. India has been even keel under Modi. Yet despite solid economic growth, India hasn’t generated much in the way of returns under Modi. Investors have been disappointed.

India-bound investors have been beaten by Russia, China and Brazil all year, though Brazil has been slipping lately. India stocks, as measured by the Wisdom Tree India fund, are up just 1.8% in the last 12 months, beating the benchmark MSCI Emerging Markets, Russia, Brazil and China. Only China has beaten India over the last five years, and even that hasn’t been exciting for Modi, with EPI up just 8.75%. The S&P 500 is up over 50% in five years.

Arun Jaitley, India’s finance minister, is expected to keep his job in Modi 2.0. Photographer: Anindito Mukherjee/Bloomberg photo credit: © 2018 Bloomberg Finance LP

© 2018 Bloomberg Finance LP

One of the questions surrounding a new Modi government is whether Finance Minister Arun Jaitley will remain. He has had health issues and could be replaced by Railways and Coal Minister Piyush Goyal.

Goyal took over for Jaitley twice when he was in the U.S. for medical treatment. Goyal also served on the board of the State Bank of India, and the Bank of Baroda.

The Economic Times of India reported today that Jaitley will stay on board.

Over the past five years, Jaitley was instrumental in passing the nationwide goods and services tax, a proposal that had languished for nearly two decades in India’s highly cumbersome congress.

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