India: Voters’ verdict on Modi arrives – ING


In view of Prakash Sakpal, economist at ING, as the voting ended in India and the final results will come through on Thursday, exit polls suggest that Narendra Modi is set to return as the prime minister for a second term.

Key Quotes

“Given the state election surprises in 2018, we think the results of this general election could still be unpredictable – and we’re not alone. Recent opinion polls also indicate the main political rivals including the incumbent Bharatiya Janata Party (BJP), the right-wing National Democratic Alliance (NDA), and the Congress-led left-wing United Progressive Alliance (UPA) could come in neck and neck.”

“Our base case remains seeing the Modi administration clinging to power for the second term, but given the anti-incumbent sentiment we saw sweeping through last year’s state-level elections in Chattisgarh, Madhya Pradesh, and Rajasthan, back when the national level polls showed the NDA losing its grip on power, there remains the potential for an election surprise. A key risk for Modi is a consolidation of opposition under Congress.”

“The Indian economy enjoyed solid growth of 7.5% per annum on average, during Modi’s five-year term, and low inflation of under 4% at least in the final year of his term.”

“The outperformance of the Indian markets and the rupee since February 2019 reflects increased investor confidence in prime minister Modi staying in power, but the uncertainty surrounding election results will undoubtedly sustain the negative sentiment in local markets already roiled by contagion from the escalation of the US-China trade war recently.”

“We believe the markets are priced in for (our) baseline scenario of a BJP-led coalition retaining power albeit with a thin margin. Such an outcome means that the election results should have little impact on markets, and in turn should be left to be driven by non-political factors, domestic and external. Indeed, the currency market has so far vindicated our forecast of the INR weakening past 70 against the USD. We see the pair trading in a tight range around 71 until the election dust settles.”

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