You're listening to Asia Centric from Bloomberg Intelligence, the podcast that pulls back the curtain on global business so you can invest better across the Asia Pacific rim. I'm John Lee in Hong Kong, and.

You're listening to Asia Centric from Bloomberg Intelligence, the podcast that pulls back the curtain on global business so you can invest better across the Asia Pacific rim. I'm John Lee in Hong Kong, and.

I'm Ishika Mukaji, reported for Bloomberg News. India's election came as a shock to many observers. Prime ministern Arian Dromodi was forecast to win by a landslide victory, but was instead forced to form a coalition government and share power with allies for the first time as prime minister.

I'm Ishika Mukaji, reported for Bloomberg News. India's election came as a shock to many observers. Prime ministern Arian Dromodi was forecast to win by a landslide victory, but was instead forced to form a coalition government and share power with allies for the first time as prime minister.

What does India's election mean for its economic growth outlook for the next five years and what does this mean for India's red hot equity markets.

What does India's election mean for its economic growth outlook for the next five years and what does this mean for India's red hot equity markets.

Here to discuss India is Abhishek Gupta, India economist at Bloomberg Economics, and Nithan Chanduka, India Strategist at Bloomberg Intelligence. Abhishik Nathan. Welcome to Asia Centric.

Here to discuss India is Abhishek Gupta, India economist at Bloomberg Economics, and Nithan Chanduka, India Strategist at Bloomberg Intelligence. Abhishik Nathan. Welcome to Asia Centric.

Hi John, Hiahika, Hi.

Hi John, Hiahika, Hi.

Hiachika, Abhishek.

Hiachika, Abhishek.

Why is this election seen as a setback for Prime Minister Modi and what went wrong?

Why is this election seen as a setback for Prime Minister Modi and what went wrong?

This came as a big surprise to everybody. I guess let's so for the government itself. Because if some accounts that it believed the government had its internal estimates where the party had its internal estimates where they were expecting between two twenty to two forty seats. But again for the wider market, even going by the exit Pole results, it came as an absolute shocker. The BGP in its third term now would have to depend on Alliance partners to have majority in the lower house of the Parliament. It only won two hundred and forty seats, so that does reduce Prime Minister Moody's grip on the national politics and reduces his grip within his own party. Our sense is that as opposed to the previous two stints, where the Prime Minister's office was considered to be very strong and there were broad understanding that sometimes the PMO would bypass ministers, I think it's going to be a slightly different scenario this time around, where ministers, especially those from the Alliance partners, would have a very independent operation of those ministries. And I think that's going to be a key difference from MODI one point zero and MODI two point zero.

This came as a big surprise to everybody. I guess let's so for the government itself. Because if some accounts that it believed the government had its internal estimates where the party had its internal estimates where they were expecting between two twenty to two forty seats. But again for the wider market, even going by the exit Pole results, it came as an absolute shocker. The BGP in its third term now would have to depend on Alliance partners to have majority in the lower house of the Parliament. It only won two hundred and forty seats, so that does reduce Prime Minister Moody's grip on the national politics and reduces his grip within his own party. Our sense is that as opposed to the previous two stints, where the Prime Minister's office was considered to be very strong and there were broad understanding that sometimes the PMO would bypass ministers, I think it's going to be a slightly different scenario this time around, where ministers, especially those from the Alliance partners, would have a very independent operation of those ministries. And I think that's going to be a key difference from MODI one point zero and MODI two point zero.

What's the key message that this election is sending to Moody and the coalition partners is it telling them that they have to focus more on wealth distribution.

What's the key message that this election is sending to Moody and the coalition partners is it telling them that they have to focus more on wealth distribution.

Not really. I think the big takeaway for me, and that's what I wrote as well after the election, was that the voters have decisively said note to divisive and negative political campaigning. In fact, I did a piece of research which looked at the places where BGP and Prime Minister Modi kind of ran and negative campaign and they were like seven states which kind of came out in that analysis. And in those seven states, the party seat tally was reduced by seventy three seats relative to twenty nineteen, which is more than the drop in their total seat count in these twenty twenty four elections. For instance, Prime Ministernarians Mo they sort of ratcheting up rhetoric against the Muslim minority. In Rajasthan, there was constituency called Banwara and that did not pay off any dividends. The party lost that seat. The party also lost the seat in Fazzabad, which is where the Grand Ram Temple was built and the party was hoping that it furthering its Hindu national agenda might reap it big differdends in the state of Uta Pradesh. That didn't happen, as well, there are other examples, such as the party kind of ignoring accusations of sexual misconduct against one of its members. So a lot of policy missteps and I think divisive negative campaigning kind of worked against the party, and I think that's the big takeaway that in a way, maybe that's also good that the party will now focus more on their pro growth policies and economic agenda.

Not really. I think the big takeaway for me, and that's what I wrote as well after the election, was that the voters have decisively said note to divisive and negative political campaigning. In fact, I did a piece of research which looked at the places where BGP and Prime Minister Modi kind of ran and negative campaign and they were like seven states which kind of came out in that analysis. And in those seven states, the party seat tally was reduced by seventy three seats relative to twenty nineteen, which is more than the drop in their total seat count in these twenty twenty four elections. For instance, Prime Ministernarians Mo they sort of ratcheting up rhetoric against the Muslim minority. In Rajasthan, there was constituency called Banwara and that did not pay off any dividends. The party lost that seat. The party also lost the seat in Fazzabad, which is where the Grand Ram Temple was built and the party was hoping that it furthering its Hindu national agenda might reap it big differdends in the state of Uta Pradesh. That didn't happen, as well, there are other examples, such as the party kind of ignoring accusations of sexual misconduct against one of its members. So a lot of policy missteps and I think divisive negative campaigning kind of worked against the party, and I think that's the big takeaway that in a way, maybe that's also good that the party will now focus more on their pro growth policies and economic agenda.

So how do you expect the government to respond to the s wittle down mandate and being forced to work with coalition partners? What are some of the populist spending measures that we can expect and can India's coffers handle it?

So how do you expect the government to respond to the s wittle down mandate and being forced to work with coalition partners? What are some of the populist spending measures that we can expect and can India's coffers handle it?

So this is here where I slightly differ from the broad consensus that's evolving on what this reduced mandate for the government means. If you look at what the government can cannot do in its upcoming budget, there really isn't any provision for the government to increase welfare spending to sort of target to specific states and in order to support its alliance partners or to have a better wrapover with them. The one thing that the government can do is to give them portfolios in its cabinet, which they've already announced. So I don't really see them as increasing welfare spending right now because it's not going to result in increased support for them because the looks of elections are already over and the next elections aren't due until twenty twenty nine, so they would probably be increasing welfare spending but just ahead of the ne selections. So in the new term, I see continued policies in terms of increased cap expending and fiscal consolidation or fiscal belt tightening is likely to go ahead.

So this is here where I slightly differ from the broad consensus that's evolving on what this reduced mandate for the government means. If you look at what the government can cannot do in its upcoming budget, there really isn't any provision for the government to increase welfare spending to sort of target to specific states and in order to support its alliance partners or to have a better wrapover with them. The one thing that the government can do is to give them portfolios in its cabinet, which they've already announced. So I don't really see them as increasing welfare spending right now because it's not going to result in increased support for them because the looks of elections are already over and the next elections aren't due until twenty twenty nine, so they would probably be increasing welfare spending but just ahead of the ne selections. So in the new term, I see continued policies in terms of increased cap expending and fiscal consolidation or fiscal belt tightening is likely to go ahead.

What have BJP's coalition partners typically focused on in terms of policies in the past, like what is the pound of flesh they exact for sticking with the BJP this time?

What have BJP's coalition partners typically focused on in terms of policies in the past, like what is the pound of flesh they exact for sticking with the BJP this time?

I guess the two big coalition partners which really hold the key this time around. One is Jhanta Dal United in Bihar. Natishkomar leads that party and Chandra Babu Naidu in Andrapadesh, and both of these are so far whatever news coming up suggests that both of these would be asking for a special package for their state governments. So our senses that this special package would include more funding which would be tuned to cap expending. For instance, the state of Entrepadesh, there's likely to be demand for funds to build a new capital city over there, which essentially takes the form of more cap expending, and that is not necessarily bad for growth. I mean, when the government announces cap expending, it is in the end of the day that cap expending happened in some state or the other. So now that more of that cap expending is likely to happen in these states if Biharre and Entrepredei, That's what my take is. Besides obviously kind of increase more births for cabinet ministers from these parties. Also, there's one more demand from Alliance partner more broadly, was a relook at government's UGNIVI scheme, which was to do with recruits for the military, and there seems to be a sense that that has kind of backfired in these elections because the government has now sort of reduced the term for military recruits, so they're now supposed to serve only four years in the military, after which they're supposed to go back to the job market, although the government will help them get jobs in other areas and state police forces and the like. But the Lance partners probably all life to ask BDP to take a relook at at that scheme.

I guess the two big coalition partners which really hold the key this time around. One is Jhanta Dal United in Bihar. Natishkomar leads that party and Chandra Babu Naidu in Andrapadesh, and both of these are so far whatever news coming up suggests that both of these would be asking for a special package for their state governments. So our senses that this special package would include more funding which would be tuned to cap expending. For instance, the state of Entrepadesh, there's likely to be demand for funds to build a new capital city over there, which essentially takes the form of more cap expending, and that is not necessarily bad for growth. I mean, when the government announces cap expending, it is in the end of the day that cap expending happened in some state or the other. So now that more of that cap expending is likely to happen in these states if Biharre and Entrepredei, That's what my take is. Besides obviously kind of increase more births for cabinet ministers from these parties. Also, there's one more demand from Alliance partner more broadly, was a relook at government's UGNIVI scheme, which was to do with recruits for the military, and there seems to be a sense that that has kind of backfired in these elections because the government has now sort of reduced the term for military recruits, so they're now supposed to serve only four years in the military, after which they're supposed to go back to the job market, although the government will help them get jobs in other areas and state police forces and the like. But the Lance partners probably all life to ask BDP to take a relook at at that scheme.

Asia Centric is produced by Bloomberg Intelligence, where more than five hundred experienced analysts and strategists work around the clock to bring you timely, world class research. Our coverage spans two hundred market industries, currencies, commodities and industries, as well as over two thousand equities and credits. If you like what you hear, don't forget to subscribe and chair and knittan. India is one of the favorite equity markets for many foreign investors, especially those with an emerging markets mandate. Do you think this election will cause some foreign investors to rethink their India position?

Asia Centric is produced by Bloomberg Intelligence, where more than five hundred experienced analysts and strategists work around the clock to bring you timely, world class research. Our coverage spans two hundred market industries, currencies, commodities and industries, as well as over two thousand equities and credits. If you like what you hear, don't forget to subscribe and chair and knittan. India is one of the favorite equity markets for many foreign investors, especially those with an emerging markets mandate. Do you think this election will cause some foreign investors to rethink their India position?

Yeah, so far, Like we have kind of witnessed a bearish to owned by foreign investors, so they have sold close to two billion dollars worth of equities after the election outcome. On a structural basis, I mean, India is one of the favorite destinations for them in the emerging market space, but given forty evaluations, it probably dissuades them to allocate to Indian equities at this juncture. And like if you look at the sector split also, they have kind of allocated more towards financials than the old kind of spaces and the money is rotating out of those spaces and moving towards domestic cyclical sectors such as industrials and consumer services and so on and so forth.

Yeah, so far, Like we have kind of witnessed a bearish to owned by foreign investors, so they have sold close to two billion dollars worth of equities after the election outcome. On a structural basis, I mean, India is one of the favorite destinations for them in the emerging market space, but given forty evaluations, it probably dissuades them to allocate to Indian equities at this juncture. And like if you look at the sector split also, they have kind of allocated more towards financials than the old kind of spaces and the money is rotating out of those spaces and moving towards domestic cyclical sectors such as industrials and consumer services and so on and so forth.

So, Nathan, the Indian stock markets that record highs once again. It's bounced back from that election sell off. Do you think domestic investors are mispricing the risk to India's growth story At the.

So, Nathan, the Indian stock markets that record highs once again. It's bounced back from that election sell off. Do you think domestic investors are mispricing the risk to India's growth story At the.

Stage, It's very difficult to say like they're mispricing the risk because so far they have been proven right. We are seeing kind of relentless buying by domestic investors. Just last month, the main numbers came out where the mutual funds nearly saw doubling off net inflows on a monthly basis, and this was the highest monthly inflow since the start of the pandemic. And this was like nearly thirty ninth consecutive month of buying by domestic investors. Because household savings towards equities are pretty low in India and it's probably the lowest across emerging markets, this trend is kind of a structural trend and that is why we are seeing like emergency of domestic buying on the buses So.

Stage, It's very difficult to say like they're mispricing the risk because so far they have been proven right. We are seeing kind of relentless buying by domestic investors. Just last month, the main numbers came out where the mutual funds nearly saw doubling off net inflows on a monthly basis, and this was the highest monthly inflow since the start of the pandemic. And this was like nearly thirty ninth consecutive month of buying by domestic investors. Because household savings towards equities are pretty low in India and it's probably the lowest across emerging markets, this trend is kind of a structural trend and that is why we are seeing like emergency of domestic buying on the buses So.

Abishik, what's your take on the upcoming budget in July. What will be some key missing points now that India has a coalition government.

Abishik, what's your take on the upcoming budget in July. What will be some key missing points now that India has a coalition government.

I don't really think much is going to change in terms of what the interim budget suggested in February. Since then, there's been a big development that the RB has transferred to two point one trillion to the peace to the government and the new government Modi point Oh is likely to make use of that come July, and we essentially expect the government to continue expand its cap expending. But I think this time around, as I said earlier, some of that tap ex spending is likely to be allocated specifically to Entrepladesh and the state of Bhr to get more support from its alliance partners. Also, in terms of fiscal deficit, we expect the government to in fact at least stay put with its reduced target for this ear of five point one percentage of GDP, down from five point six percent fiscal year twenty twenty four, although there is a chance that they might reduce the deficit even further to maybe about four point nine or five percent, but maybe given that the demands of the allies on increased allocation for the relative state governments, they might not be able to redace it further, but I think overall the market is only going to take a much more positive a signal once the budget is announced and any apprehensions you've already seen that the market is largely recovered after the big sell off post the results and going forward, the fundamental drivers on the Indian economy are once again going to get attention from investors going forward.

I don't really think much is going to change in terms of what the interim budget suggested in February. Since then, there's been a big development that the RB has transferred to two point one trillion to the peace to the government and the new government Modi point Oh is likely to make use of that come July, and we essentially expect the government to continue expand its cap expending. But I think this time around, as I said earlier, some of that tap ex spending is likely to be allocated specifically to Entrepladesh and the state of Bhr to get more support from its alliance partners. Also, in terms of fiscal deficit, we expect the government to in fact at least stay put with its reduced target for this ear of five point one percentage of GDP, down from five point six percent fiscal year twenty twenty four, although there is a chance that they might reduce the deficit even further to maybe about four point nine or five percent, but maybe given that the demands of the allies on increased allocation for the relative state governments, they might not be able to redace it further, but I think overall the market is only going to take a much more positive a signal once the budget is announced and any apprehensions you've already seen that the market is largely recovered after the big sell off post the results and going forward, the fundamental drivers on the Indian economy are once again going to get attention from investors going forward.

And what are some of the land and labor reforms that are no longer expected to go through?

And what are some of the land and labor reforms that are no longer expected to go through?

So Isshika. If you look at the last years when the BGP had absolute majority in the Lok Sabah, they also had towards the end of their second term together with their alliance partners, good enough size in the upper house of Parliament, so they could have passed these laws. Then the fact that they could not pass those laws at that time means it's going to be equally challenging for them now when they have a reduced mandate in the Lok saba Now they have more seats in the upper house and they're close to the halfway mark in the upper house, so it should be easy for them to pass laws as long as Alliance partners give their approval for a particular reform. But I guess these reforms are challenging and they fall on the concurrent list of the center and state governments. So my sense is that in order to go forward with these reforms, the government's likely to take the approach of moving forward with them in respective state governments where they rule, rather than try to have much broad praised umbrella kind of a policy which they tried to push down the throats of the state governments, and I think they would probably find that kind of challenging.

So Isshika. If you look at the last years when the BGP had absolute majority in the Lok Sabah, they also had towards the end of their second term together with their alliance partners, good enough size in the upper house of Parliament, so they could have passed these laws. Then the fact that they could not pass those laws at that time means it's going to be equally challenging for them now when they have a reduced mandate in the Lok saba Now they have more seats in the upper house and they're close to the halfway mark in the upper house, so it should be easy for them to pass laws as long as Alliance partners give their approval for a particular reform. But I guess these reforms are challenging and they fall on the concurrent list of the center and state governments. So my sense is that in order to go forward with these reforms, the government's likely to take the approach of moving forward with them in respective state governments where they rule, rather than try to have much broad praised umbrella kind of a policy which they tried to push down the throats of the state governments, and I think they would probably find that kind of challenging.

Nathan So the Power Minister, Aschkamar Saying, lost his seat and he's been replaced. There was quite a bubble in the renewables sector within the stock market in India. What's the outlook for energy transition in one of the world's largest greenhouse gas emitters now? And do you think we're going to see that bubble deflate?

Nathan So the Power Minister, Aschkamar Saying, lost his seat and he's been replaced. There was quite a bubble in the renewables sector within the stock market in India. What's the outlook for energy transition in one of the world's largest greenhouse gas emitters now? And do you think we're going to see that bubble deflate?

I think the structural demand for energy remains quite buying for India because as India grows, there'll be a natural demand for energy. So far, the stock market is not reflecting on any kind of like a derailment on that front. And you can see like an the power sector is the stocks have against bounce back, so I would not see it as a derailment of the story at this juncture.

I think the structural demand for energy remains quite buying for India because as India grows, there'll be a natural demand for energy. So far, the stock market is not reflecting on any kind of like a derailment on that front. And you can see like an the power sector is the stocks have against bounce back, so I would not see it as a derailment of the story at this juncture.

And Abashek, you're the senior economist covering India for Bloomberg Economics. Does this election result cause you to question your GDP forecasts of India over the next five years.

And Abashek, you're the senior economist covering India for Bloomberg Economics. Does this election result cause you to question your GDP forecasts of India over the next five years.

John, That's a very good question. I guess I would not change my view on India over the next three four years, but yes, it does raise a question mark over my four coast of the like let's say the full five year term or the ten year term, because a lot of that kind of depends how the government navigates its relationship with this alliance partners, whether it is able to bring them up at the same level of thinking in terms of the need to stick to pro growth policies of increased capex, reduce welfare spending, so that kins to be seen, although I think closer to the twenty twenty nine elections there might be increased welfare spending, but again that also comes at the realization that the demand side has been lacking. And then Indian economy, the government has been very good with the supply side measures of removing bottlenecks, increasing CAPEX, boosting infrastructure creation, but they also need to do something to prop up demand, and from that person, re welface spending might not be such a bad idea. Overall, the fundamental drivers of the Indian economy over the next decades stay intact. Favorable demographics, more CAPEX, GEO political tailwinds, and India trying to establish itself or integrate itself into the global manufacturing supply chain. So I would say only marginally negative. It's a risk at this point, but I would not change my baseline forecasts and.

John, That's a very good question. I guess I would not change my view on India over the next three four years, but yes, it does raise a question mark over my four coast of the like let's say the full five year term or the ten year term, because a lot of that kind of depends how the government navigates its relationship with this alliance partners, whether it is able to bring them up at the same level of thinking in terms of the need to stick to pro growth policies of increased capex, reduce welfare spending, so that kins to be seen, although I think closer to the twenty twenty nine elections there might be increased welfare spending, but again that also comes at the realization that the demand side has been lacking. And then Indian economy, the government has been very good with the supply side measures of removing bottlenecks, increasing CAPEX, boosting infrastructure creation, but they also need to do something to prop up demand, and from that person, re welface spending might not be such a bad idea. Overall, the fundamental drivers of the Indian economy over the next decades stay intact. Favorable demographics, more CAPEX, GEO political tailwinds, and India trying to establish itself or integrate itself into the global manufacturing supply chain. So I would say only marginally negative. It's a risk at this point, but I would not change my baseline forecasts and.

Ntin given Abershek's comments, how should we think about equity sector allocation? There seems to be this narrative forming that you know, Murdy's weakened positioning is negative for infrastructure plays capex, but it could be positive for possibly consumption stocks. Do you agree with this view?

Ntin given Abershek's comments, how should we think about equity sector allocation? There seems to be this narrative forming that you know, Murdy's weakened positioning is negative for infrastructure plays capex, but it could be positive for possibly consumption stocks. Do you agree with this view?

I think it's not linked to was the election outcome before, because if you'll see the Internet budget, the KPX spending growth was stated to go down to eleven percent from the Scotching thirty percent plus KIGER growth that we have witnesses the pandemic and industrial tech is quite devered to the government KPX growth and given very steep valuations, with some of the stocks trading at even higher valuations than FMCG firms, there could be a risk of derating in those firms and consequently the sector. So the government KPX is the number to be closely washed out for any slowdown in the KPX road could actually result in derating to some of these names. So that's why we have kind of roundrated the outlook for this sector in our sector's core card, and we find valuations in financials to be more lucrative compared to this side of the market. In terms of consumption. We think that discretionary side is going to do better compared to the stable side because of the price of premiumization trend and that is not going to be derailed by this outcome.

I think it's not linked to was the election outcome before, because if you'll see the Internet budget, the KPX spending growth was stated to go down to eleven percent from the Scotching thirty percent plus KIGER growth that we have witnesses the pandemic and industrial tech is quite devered to the government KPX growth and given very steep valuations, with some of the stocks trading at even higher valuations than FMCG firms, there could be a risk of derating in those firms and consequently the sector. So the government KPX is the number to be closely washed out for any slowdown in the KPX road could actually result in derating to some of these names. So that's why we have kind of roundrated the outlook for this sector in our sector's core card, and we find valuations in financials to be more lucrative compared to this side of the market. In terms of consumption. We think that discretionary side is going to do better compared to the stable side because of the price of premiumization trend and that is not going to be derailed by this outcome.

Okay, and lastly, maybe a question for both of you, whoever would like to weigh in what does this mean for billionaires such as got the Madania and Location Barnie who have been closely tied with India's growth story. What does it mean for the links between the rich and the government. Will any change?

Okay, and lastly, maybe a question for both of you, whoever would like to weigh in what does this mean for billionaires such as got the Madania and Location Barnie who have been closely tied with India's growth story. What does it mean for the links between the rich and the government. Will any change?

So it's a very i would say, tricky question to answer, but I think the stock markets kind of answered that question on both the exit poll day and the results on June fourth. I mean, Dannie, who's well perceived to be very close to a Prime Minister Modi all his talks, kind of saw like fifteen to twenty percent increment after the exit poll results were announced, and those results also took a big beating on the day actual election results came on June fourth. But since then there's been a lot of recovery as well. We've seen kind of corruption at the level faced by individuals has kind of reduced, but at the same time, broadly, I mean, if you speak to ministers, everybody kind of agrees that corruption at the highest level is still there. I mean, that's just the part of politics which is there and it remains to be seen. I mean, how these companies do, to a large extent, the results of how their fortunes play out will largely depend on what these companies do in order to kind of expand their businesses. So let's see what kind of course forward.

So it's a very i would say, tricky question to answer, but I think the stock markets kind of answered that question on both the exit poll day and the results on June fourth. I mean, Dannie, who's well perceived to be very close to a Prime Minister Modi all his talks, kind of saw like fifteen to twenty percent increment after the exit poll results were announced, and those results also took a big beating on the day actual election results came on June fourth. But since then there's been a lot of recovery as well. We've seen kind of corruption at the level faced by individuals has kind of reduced, but at the same time, broadly, I mean, if you speak to ministers, everybody kind of agrees that corruption at the highest level is still there. I mean, that's just the part of politics which is there and it remains to be seen. I mean, how these companies do, to a large extent, the results of how their fortunes play out will largely depend on what these companies do in order to kind of expand their businesses. So let's see what kind of course forward.

It's been a fascinating discussion on India its surprise election results and its impact on its red hot equity markets. Thank you Abhishek and Nitton for joining.

It's been a fascinating discussion on India its surprise election results and its impact on its red hot equity markets. Thank you Abhishek and Nitton for joining.

Thank you for having us, Thank you John, Thank you Sheik.

Thank you for having us, Thank you John, Thank you Sheik.

I'm John Lee calling in from Hong Kong and.

I'm John Lee calling in from Hong Kong and.

I'm Isham calling in from Singapore.

I'm Isham calling in from Singapore.

This podcast was produced by Klara Chen and you've been listening to the Asia Centric podcast

This podcast was produced by Klara Chen and you've been listening to the Asia Centric podcast