As the one-year anniversary of Narendra Modi’s victory in the Indian general election has been reached, investors have run the rule over his first year in government.
Argal, who is head of Indian equities at Barings, is confident the earnings growth being sought in the corporate sector will start to come through in the next months.
However, the market has suffered a slowdown during the past month after the strong volatile performances that followed the elections in May 2014.
‘Far from reflecting a weakening of the investment case, we believe this presents an opportunity as the long-term investment case is undimmed and market expectations for earnings growth at companies had simply risen to levels which were unrealistic in the short term’, Argal said in an investment update.
Meanwhile, Argal also reckons important steps forward have been made in the government’s legislative programme. ‘They have successfully steered three out of five important bills through parliament.’
Argal refers to a coal mines bill, which authorises private sector mining, an insurance law which allows foreign insurance companies to hold 49% of domestic firms, this is up from 26%.
In addition, Argal also pointed to an amendment to existing mines and mineral development act for local and central governments to invite competitive offers granting mineral concessions.
Modi the leader
Echoing Argal’s positive stance, fellow Citywire AA-rated manager Rahul Chadha, who runs the Mirae Asset India fund, said Modi has entered with a clear mandate. ‘Modi focused on “minimum government, maximum governance”,’ Chadha said.
Chadha said falling inflation and favourable monetary policy will provide a good growth tailwind and India could end up becoming the fastest growing economy with GDP growth of over 6%.
‘Also, the Indian market is fairly valued. The aggregate profit as a percentage of GDP is now at 4% versus 7% in 2008.’
Going forward Chadha believes Modi’s government will likely focus on urbanization of rural areas, an easing of bureaucracy, infrastructure and fiscal discipline.
‘People in India still have a hard time seeing all the improvements put in place but from an international perspective they are a lot more obvious’, he said.
Meanwhile, the Chadha identifies a rise in trade deficit and a sharp spike in crude oil prices as the major current downside risks for the country.
Too soon to call
Investors have also recently expressed concerns over the much-anticipated goods and service tax, which would create a common market within the country by removing fiscal barriers between Indian states.
According to Argal, while the bill would naturally disappoint investors, the finance minister has committed to passing it in July.
‘Furthermore, the authorities remain committed to the land acquisition bill, albeit while recognising that there may need to be some compromise to get it through parliament’, Argal added.
Argal and Chadha, agree reforms take time and if Modi’s government is put into the context of his five year mandate, the past twelve months have definitely been a good start.