Just in early JunekawaiiislandscryptoIndian stock market faces a "big test"
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Bernstein believes that policy continuity is the key driving force for India's economy to maintain stable growth. If Modi fails to win, investors may dump Indian assets.
In the past few years, India's stock market has ranked at the forefront of global markets, with broad stock indexes hitting record highs repeatedly. The Indian economy is also in a prosperous upward cycle. However, with the results of India's election coming out, all this is likely to come to an end.
Wall Street has previously mentioned that according to Christopher Wood, head of global equity strategy at Jefferies, if the Modi government's election results fall short of expectations, the Indian stock market will face the risk of a correction.
Investment banks currently generally believe that a slim majority for Prime Minister Modi's Bharatiya Janata Party (BJP) in the election could trigger a market sell-off and endanger its plans to promote broader reforms. Reforms of India's land and labor laws require a lot of political chips, and if Modi fails to win, these reforms will face obstacles.
Investors have already sold $6.3 billion in Indian stocks and bonds this quarter, and the selling could intensify if the election results are irrational, and could also put more pressure on the Indian rupee, which is at a historical low against the dollar. India's VIX index, which measures volatility over the next 30 days, has doubled since its April low, and the one-month volatility of the U.S. dollar/rupee options curve has steadily increased since the start of last month's elections.
Modi once said in an interview with local media that the BJP and its allies will win 400 seats in the election, up from about 350 seats in 2019. However, low turnout and fierce campaigning in some areas have raised concerns about the breadth of public support.
Bernstein believes that policy continuity is the key driving force for India's economy to maintain stable growth. Although the Modi government has implemented a nationwide sales tax, promoted digitalization and reformed state-owned enterprise governance standards, it has had to postpone the implementation of labor and agricultural reforms in 2021 due to fears of a political backlash.
Rob Brewis, investment manager at asset management firm Aubrey, told the media that Modi still has some important tasks to complete on his to-do list, and these tasks will be easier to complete if he can obtain an overwhelming majority in the election.
Strategists at Goldman Sachs and Societe Generale believe the rupee will get a boost if Modi wins a third term. Goldman Sachs also predicts that Modi's re-election will attract more foreign investment into the local stock market, which will help boost the rupee.
Risk warnings and exemption clauses
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