The biggest story in India these days continues to be the May 2014 elections and what they could mean for India’s economy which is growing at its slowest pace in a decade.
Naturally analysts have been weighing in on the elections.
But a Goldman Sachs note titled ‘Modi-fying our view: raise India to Marketweight,’ which references Indian prime ministerial hopeful Narendra Modi, is kicking up a storm in India.
The note by Sachs’ Timothy Moe and his team cites six key reasons for this change. But it is the first reason: “optimism over political change, led by BJP’s prime ministerial candidate Mr. Modi, is dominating economic concerns,” that sparked the outrage.
Moe argues that Modi and his Bharatiya Janta Party (BJP), the opposition party at the moment, have in the past focused on infrastructure and capital spending and that “a BJP-led government may be beneficial for the investment demand pick up, in our view.”
Here’s more from Moe and his team:
“Currently, the macro challenges that India faces in terms of external and fiscal imbalances, high inflation and tight monetary policy are being dominated by expectations of political change, specifically that the BJP- led National Democratic Alliance (NDA) could prevail in the next parliamentary elections that are due by May 2014.
“Equity investors tend to view the BJP as business-friendly, and the BJP’s prime ministerial candidate Narendra Modi (the current chief minister of Gujarat) as an agent of change. Current polls show Mr. Modi and the BJP as faring well in the five upcoming state elections, which are considered lead indicators for the general election next year. Even though the actual general election outcome is uncertain, the market could trade this favourably over the next 2 quarters, which argues for modifying our stance.”
Commerce minister Anand Sharma, who is a member of India’s Congress party that is part of the ruling coalition, told reporters the note was “inappropriate and objectionable.” Here’s his reaction (via The Economic Times):
“We don’t need this kind of daily certification or assurance. We are a self confident nation. We surely would not be entertaining prescriptions when it comes to Indian democracy from those who are totally disconnected. We have more than 800 million voters, any prescription would be insulting their collective wisdom and they should refrain from that.
“…These reports could also be coloured, influenced, and these are most inappropriate and objectionable.
Goldman Sachs has come out in defence of the report (via DNA India):
“Our Asia Pacific Portfolio Strategy report… contains no political bias nor any political opinion by Goldman Sachs or its analysts. It simply notes that investor sentiment is being influenced by party politics. We stand by that assertion and by our research.”
In case you were wondering, here are the other five reasons Moe and his team upgraded their view on India.
- External pressures have let up.
- “Early signs of cyclical pick up and structural improvement.”
- The earnings outlook has improved.
- Midrange valuations are not a constraint on the market and mid-cap stocks look attractive.
- Foreign inflows have been strong and redemption by domestic institutions and investors could ease.