2019 Elections - Part 3. India: Modi’s Magic Touch Fades as Populism Re-Appears
The world’s largest democracy holds general elections over a six-week period in April-May. The ‘Modi magic’ of five years ago has long faded as growth failed to meet expectations. Poor results in recent state assembly elections signal something of a ‘Congress comeback’, which raises the risk of a hung parliament and a prolonged period of political uncertainty. The close race has spurred Modi’s BJP to backtrack on fiscal consolidation and instead pivot towards populist policies (like farm loan waivers) that may fan inflation, reignite ‘twin deficit’ concerns and reverse India’s ratings upgrades. Risk assets are likely to see more volatility, with risks tilted to the downside.
This insight is Part 3 of a six-part series on 2019 elections in which we evaluate key polls and their potential to re-shape the economic outlook and investment risk profiles. These six markets - Thailand, Indonesia, India, South Africa, Greece and Argentina - collectively represent one-quarter of the world’s population and more than $5 trillion in GDP. We review distinct domestic challenges as well as campaign pledges by incumbents (and their challengers) aimed at addressing them. We also humbly assign probabilities to baseline and alternative scenarios and their implications for macroeconomic outlook and investments.
Even amidst their diversity, these six jurisdictions display some remarkable similarities: subdued economic momentum, bouts of market volatility, signs of voter disquiet and/or disillusionment and an opposition looking to capitalize on all of these forces. In a bid to revive the ‘magic’ that had helped to install their administrations, many incumbent governments are now on the defence - either changing tack (and dialing back past policies) or attempting to convince voters to let their policies work their magic.
Summary - Election timeline, political risk classification and market implications:
Election date (2019) | Degree of uncertainty | Baseline scenario (%) | Market implications | Market view | |
Thailand | 24 March | Medium to High | Elections are held and pro-junta PP keeps control (65%) | Medium to Low | THB: Stable unless political uncertainty erodes confidence, tourism ThaiGB: Stable CDS: Gradually wider SET: Energy, materials and capital goods favoured. More upside in non-bank financials vs financials. |
Indonesia | 17 April | Low | Jokowi re-elected, PDIP coalition intact (75%) | Medium | IDR/IndoGB: Constructive INDON: Stable JCI: prefer energy, materials, services, capital goods, transportation,and telco.Cautious on main banks. |
India | April to May | High | BJP/NDA retain power, with smaller majority (60%) | High | INR/IGB: Steeper curve (bearish long-end) CDS: Wider on potential negative sovereign outlook Nifty: Cautious healthcare and banks. Overweight IT. |
South Africa | 7-31 May | Medium to High | ANC retains power (80%) | High | ZAR/SAGB: Constructive SOAF: Constructive JSE Top40: Constructive on Financials. Cautious on consumer. |
Greece | 20 October | Medium to High | ND returns to power (52%) | Medium to High | GGBs/CDS: Scope to tighten vs periphery peers AEX: Banks may revive though European credit markets need to be watched. Energy, Infra, and utilities offer opportunity. Gaming too. |
Argentina | 27 October | High | Cambiemos retains power (52%) | High | ARS/Argtes: Peso richly valued but slower inflation positive for Argtes ARGENT: Volatile Merval: Volatile. Optically cheap valuations signify risk and weak growth. Hydrocarbons could be a winner. Cautious on consumer. |
Historical 5yr CDS (Argentina and Greece = LHS, all others RHS):
Historical equity indices (rebased where 1 Jan-2018 = 100):
Please refer to other insights in this series:
- Elections 2019 - Part 1. Thailand: Magic Moment for Democracy’s Return?
- Elections 2019 - Part 2. Indonesia: Jokowi’s Policies - Magic Bullet or Bitter Pill?
- Elections 2019 - Part 3. India: Modi’s Magic Touch Fades as Populism Makes a Comeback
- Elections 2019 - Part 4. South Africa: Ramaphosa - ANC’s Magician?
- Elections 2019 - Part 5. Greece: New Democracy Promises Magic Makeover
- Elections 2019 - Part 6. Argentina: Macri Magic and the Peronist Spell
This series is co-authored by Paul Hollingworth at Creative Portfolios and Virgil Fernandez Esguerra.
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- 2019 Elections - Part 6. Argentina: Macri Magic and the Peronist Spell09 Feb 2019
- 2019 Elections - Part 5. Greece: New Democracy Promises Magic Makeover09 Feb 2019
- 2019 Elections - Part 4. South Africa: Ramaphosa - ANC’s Magician?08 Feb 2019
- 2019 Elections - Part 2. Indonesia: Jokowi’s Policies - Magic Bullet or Bitter Pill?07 Feb 2019
- 2019 Elections - Part 1. Thailand: Magic Moment for Democracy’s Return?07 Feb 2019