Ashburton’s Finch: Modi’s gamble with demonetisation pays off
Over the weekend the election results from five Indian states, Goa, Manipur, Uttarakhand, Punjab and most significant of all, Uttar Pradesh (UP) were announced.
Following discussions with journalists and poll experts on my trip to UP last week, consensus was that the Bharatiya Janata Party (BJP) of Prime Minister Narendra Modi was closing in on a marginal majority.
However, recent history has shown that psephologists (political scientists) have been too conservative in their estimation of populist persuasion. Once again this has proven to be the case.
These results conclusively set-up India for a period of political stability likely to last for at least seven years, unique in emerging markets and indeed globally. Indian assets were not pricing this outcome, and we expect the positive boost to sentiment to aid both the stock market and the Indian rupee.
I make no apologies for focusing on the UP election results, with a population of 200m people, and 80 parliamentary seats up for grabs. It is by far the most influential election ahead of the 2019 general election.
With these results the BJP, or rather Modi, has in cricket parlance, smashed a six right out of the ground. Prior to the results, expectations at the upper end were for the BJP to win around 220 seats of the 403 being contested in UP. It is abundantly clear that number was hugely underestimated, with the BJP winning 312 seats in the state.
This result indicates that Modi’s gamble with regards to demonetisation, and the cancellation of 86% of the country’s currency has paid off. This election result is testament to the belief from the “common man” that Modi is their saviour who will drive out corruption and make the lives of ordinary Indians incrementally better.
Modi was the driving force behind the election campaign, telling voters that his was the only party that could deliver development opportunities, strong law and order with an alignment to central government that would propel growth upwards within UP.
The size of the majority win has decimated the opposition parties, particularly the Gandhi-led Congress Party. Modi will feel emboldened to intensify the reform agenda in the next two years. Goods and Services Tax (GST) is scheduled to be implemented in July 2017 and we do not foresee any delays.
Perhaps the most fascinating outcome from this election has been the dramatic shift away from caste and religious voting preferences towards a growth and economic requirement from the “common man”.
Recent discussions whilst in India indicated that caste and religion are being surpassed by economic demands from the youthful electorate and so it has proven with these results. Modi has received the biggest seal of approval since the 2014 general election. He will use this momentum to build for re-election which will be seen positively by the Indian equity markets.
Simon Finch is co-manager of the Ashburton India Equity Opportunities fund