Indian Stocks Arrest Slide as Election Finishes, and the Economy Fires Up
India, notching another strong quarter, is on track to eclipse Germany and Japan in short order to become the world’s third-largest source of economic output.
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Indian equities arrested a five-day slide on Friday, the markets inching into the green as the world’s largest elections wrap up this weekend.
Polling in the seven-stage elections ends on Saturday night, with the results due June 4. It’s likely Prime Minister Narendra Modi will secure another victory, but quite by what margin is unsure.
Indian stocks were the stars of last year, the Nifty 50 up 19.4%, while the Sensex gained 18.7%. And India, taking over where China left off, remains the fastest-growing major economy in the world.
But Indian markets have been extremely choppy in 2024, buffeted by the warm winds of politics that will now abate. Market watchers attribute this week’s run of declines to investors trimming positions and locking in gains ahead of the results.
The Nifty 50 ended Friday with a narrow 0.2% gain. But that came after six straight trading days of decline, and left it nursing a 1.9% drop for the week. The index has been all over the place in 2024 and is currently registering a 3.6% gain year-to-date, dramatically underperforming both the 7.6% advance for emerging Asian equities in general and the 10.4% advance for the S&P 500.
The Sensex has fared no better, up 2.3% in 2024. The market has tripled since the depths of the first Covid selloff. So the lack of direction this year is a marked change from recent bullishness. We’ll have to see whether a resolution to the election removes market uncertainty, and gives stocks more direction.
I’m betting it will because the underpinnings of the Indian economy, with its youthful workforce, are strong.
India is reporting today that gross domestic product for Q4 of fiscal 2024 ran at 7.8%. That results in an overall 8.2% growth rate for the year through March.
It’s a heady pace of growth, underpinned by strong manufacturing and construction. The prior quarter had delivered a shock 8.4% leap, and even these latest numbers are better than the 6.7% rate that economists expected.
The central Reserve Bank of India is therefore predicting that the Indian economy will advance 7% in the fiscal year through March 2025. Capital expenditure figures also look strong.
The Indian government therefore predicts that India will become the world’s third-largest economy within the next three years, behind only the United States and China. It currently sits in fifth but is likely to soon eclipse Germany and Japan.
Indian stocks, meanwhile, are worth a combined US$5 trillion, putting the markets on a par with beleaguered Hong Kong. It’s largely as a result of the travails facing Hong Kong and China that Indian stocks have blossomed post-pandemic.
The Indian elections are particularly large, and particularly long-running. Voting began on April 19 due to the difficulties in organizing polling across a diverse nation, often underserved by the infrastructure to reach rural populations. Some 969 million out of the 1.4 billion population are registered to vote, and turnout in the first six phases has generally run around 64%.
Turnout has been high as Modi seeks a third five-year term. He has been a business-friendly leader but has also stoked the fires of caste and religious discontent, often throwing his camp in with Hindu nationalists. While he normally codes his language carefully, he has even veered into open criticism of the Indian Muslim population as “infiltrators” who have more children, while seeking to seize the wealth of other citizens.
Modi has also cracked down on his political opponents, who often find themselves in sudden legal trouble, and on free speech, with critical voices in the media silenced.
Still, India remains the world’s largest democracy, and an important U.S. ally in Asia. Modi must walk a fine line in his relations with China, both an economic and political rival in the region.
There’s no doubting where the markets have favored in the post-Covid world. Whereas China and Hong Kong stocks have lost you an annualized 17.1% over the last three years, according to S&P indexes, Indian equities have gained an annualized 12.5%.
The elections have generally been orderly and well-respected. Now that they’re out of the way, we should watch for renewed signs of upward movement in Indian equities.
