Some of the American Foreign Institutional Investors are not convinced about Shri Narendra Modi’s Big victory. Many though seem more confident than we are of a strong government reviving the investment cycle quickly. While it is hard to quantify, this suggests the threshold for market disappointment is not 230-240 seats for the NDA but 210-220.
While some did question if there was any big difference between the two big parties, or how quickly India’s problems can get solved, many believed that a strong government could take advantage of the prevalent situation and move ahead. That said, if the verdict is indeed very strong (NDA 250-plus), as some recent opinion polls have indicated, some investors will increase their India weights. Given the relatively illiquid market, that could mean a spike in the index.
FII focus has shifted to macroeconomic variables like currency, interest rates, inflation and the twin deficits. Many still seemed worried about the impact of potential rate increases in the US on the INR. Some investors recalled the administrative freedom the previous NDA government accorded most PSUs (Public Sector Units, i.e. majority government owned), and believe that their sharp underperformance over the past ten years is about to reverse. We believe that argument has merit.