x Abu Dhabi, UAEMonday 22 January 2018

Indian financial assets rally as BJP’s electoral success lifts confidence

The Bharatiya Janata Party, which is perceived as more business-friendly than the ruling Congress Party, won an absolute majority in three of the four state elections on Sunday.

MUMBAI // The Indian rupee rose to a four-month peak and stocks hit a record high yesterday, as the main opposition party’s success in state elections boosted investor confidence.

The Bharatiya Janata Party (BJP), which is perceived as more business-friendly than the ruling Congress Party, won an absolute majority in three of the four state elections on Sunday.

The Congress Party has been mired in corruption allegations, heavily criticised for delays in bringing about economic reforms and blamed for stalled infrastructure projects in India.

Narendra Modi, the BJP’s candidate for prime minister and the chief minister of Gujarat, has been widely credited with playing a major role in the state’s rapid economic development in recent years.

Many believe that were Mr Modi to come to power, he could play a similar role in improving the business climate of the country, as it grapples with an economic slowdown. The results of the state elections could be an indicator of the party’s performance in the general elections, which are expected by May.

The S&P BSE Sensex, India’s benchmark stock index, soared 487 points to an all-time high of 21,483.74 in trading yesterday. It ended the day at a record closing price of 21,326.42, up 1.57 per cent on the previous close. The Nifty on the National Stock Exchange was also propelled to a record high. The rupee strengthened to 60.84 against the US dollar yesterday, from Friday’s close of 61.41.

“We have seen a bout of improving risk sentiment take the Indian rupee higher,” said Gaurav Kashyap, the head of futures at Alpari ME, a global online currency and commodities broker.

“The recent moves find their foundations amid improving political developments over the weekend.”

Goldman Sachs controversially upgraded its view on Indian stocks last month, citing expectations among investors that the BJP would come to power after the general elections.

The US investment bank said: “Equity investors tend to view the BJP as business-friendly, and the BJP’s prime ministerial candidate Narendra Modi as an agent of change.

“BJP and Mr Modi, in particular, have been focused on infrastructure and capital spending in the past and a BJP-led government may be beneficial for the investment demand pick-up, in our view.”

Although the outcome of the general election remained uncertain, anticipation of a BJP victory could have a positive impact over the coming months, Goldman Sachs said.

India has been struggling with slow economic growth and high inflation levels. Its GDP growth fell to a decade low of 5 per cent in the past financial year, well below the 8 per cent level that is believed to be required to create jobs for the country’s burgeoning young population.

The rupee plunged to a series of historic lows over the summer, triggered by expectations that the Fed would wind down its stimulus programme. That led to an exodus of funds from emerging markets, as well as concerns about India’s significant current-account deficit. The currency hit an all-time low of 68.84 against the US dollar in August.

Mr Kashyap said the rupee would continue to gain from the perception of improving political developments in India. “But any upsides will be held in check with the [US] FOMC policy meeting set for December 17 to 18,” he said.