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Indian election result should ease investor concerns
FT Adviser
19th May 2009
The recent election of the United Progressive Alliance (UPA) into power in India should ease investors' concerns and improve the domestic economy in the long-term, according to regional experts.
Yesterday, Manmohan Singh's left-of-centre coalition was elected to a second term following a clear victory in the general election.
Sam Mahtani, director of emerging equities at F&C, said the congress-led coalition had a history of passing reforms that contributed to the domestic economy and that the new government was likely to continue with further reforms that spurred Indian economic growth.
He also said the election result had done much to ally investors' fears about the future of the country, with stocks rallying by 17 per cent once the outcome was announced.
"I anticipate the UPA will focus on introducing fiscal consolidation and policy continuity, with an emphasis on strengthening the domestic economy," he said.
"The strong showing in the polls for the UPA, led by prime minister Singh, could be a game changer for India and unlock higher levels of growth for the country in the medium to long-term.
"India must take this opportunity to push ahead on key reforms, such as reducing the fiscal deficit and further privatisations."
Mahtani said infrastructure and banks were likely to be the key benefactors of the fiscal stimulus measures and likely interest rate cuts, in particular companies such as BHEL and L&T, two key players in the infrastructure space, and HDFC, the largest mortgage lender in the country.
Shyam Kumar, chief executive of financial services group Kotak Mahindra, echoed Mr Mahtani's assessment of the election, saying the key thing the new party brought to investors was certainty.
"Investors like certainty," he said. "With this decisive mandate, one of the major challenges and risks facing investors looking at the Indian market - political uncertainty - is now behind us."
Kumar added that although many investors would capitalise in the short term, they should see the situation as one with long-term potential that will see India eventually re-rated.
Like Mahtani, Kumar also identified infrastructure as the sector with the most to gain. Demographics-led consumption, as well as outsourcing, should also receive a boost, he said.
Meanwhile, Hugh Young, managing director of Aberdeen Asset Management Asia, said the key feature of the UPA's victory was the fact the government would not have to rely on the Communist-led alliance, which "held back much-needed reforms" in recent years.
He said: "The decisive result offers hope economic and governance reforms will now move forward, although the huge budget deficit will continue to present a major challenge, with public opposition to subsidy cuts remaining strong."
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