Views on Indian state elections

Avinash Vazirani -

India’s latest round of state elections saw a good set of results for Prime Minister Modi’s Bharatiya Janata Party (BJP

India’s latest round of state elections saw a good set of results for Prime Minister Modi’s Bharatiya Janata Party (BJP), particularly in the highly populous state of Uttar Pradesh – home to 16% of India’s population– where it won 312 out of 403 seats. In my view this is a welcome sign of political stability from which India stands to benefit, as it shows the public is behind Modi’s ongoing regulatory reforms despite the disruptive impact of November’s currency demonetisation.

I believe that India stands set to benefit in the long term from several structural trends:

  1. The move towards a more inclusive financial system that is less reliant on subsidies (which tend to suffer from “leakage” and delays) and towards a system of direct benefit transfers made possible by India’s universal biometric ID card scheme.
  2. The upcoming Goods & Services Tax, which is due to be implemented in July 2017, which should help level the playing field between the organised and unorganised parts of the economy, aiding businesses and boosting the government’s tax revenue.
  3. The proliferation of fast internet in India. India is now the second largest country in terms of internet users (ahead of the US, but behind China), with around 76% of internet users in India accessing the internet through mobile data (one telecom provider recently disclosed that its 100 million subscribers use on average around 10 GB of data per month).
  4. The shift to formal savings accounts, which has been encouraged by de-monetisation as people had to deposit their cash reserves into the banking system.

It will likely take a few months for these long term positive factors to develop, however, and in the meantime there will be some uncertainty. The most recent quarterly results were encouraging, but it remains to be seen whether earnings in next couple of quarters will be impacted. However, share price valuations are currently hovering around long term averages5, despite what I see as the potential for an uptick in growth as consumers shift to the formal economy. So, in conclusion, although India is facing a period of short term pain my view is that it should lead to long term gain.

Avinash Vazirani – manager of the Jupiter India Select – Jupiter Asset Management