Indian markets on election roll but doubts linger

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NEW DELHI: Indian shares extended their roll Wednesday, hitting another lifetime high while the rupee traded at a new eight-month peak, as investors bet a more business friendly government will come to power in elections.
But some analysts warn that expectations the opposition Hindu nationalist Bharatiya Janata Party (BJP), tipped to win national elections starting next month, can turn around India’s ailing economy may be a mirage.
Much of investor optimism over a BJP win rests on belief that Narendra Modi, the conservative chief minister of prosperous Gujarat state, will strongly advocate pro-growth reforms to open up India’s still largely closed economy.
But “current (market) optimism in our view is going too far,” Capital Economics analyst Miguel Chanco said, noting unwieldy coalition politics that hamstrung the current Congress government could constrain the next administration too.
Still, opinion polls suggesting the BJP will oust the scandal-tainted Congress has pushed business optimism to its highest since 2011, according to business information provider Dun and Bradstreet.
The Bombay Stock Exchange’s benchmark index rose nearly a fifth of a percent to a new peak of 22,095.30 point Wednesday while the rupee traded at 61.25 to the dollar, its highest since last August when it crashed on a gloomy Indian financial outlook. Foreigners, shunning some other emerging markets, have pumped in $2.5 billion into Indian shares in March alone. “If the BJP comes to power, it will be taken as a signal for stability in the economy and stock markets will take it very positively,” said Vivek Gupta, research director at CapitalVia Global Research Investment.
Modi, 63, is riding a wave of popularity amid wide disenchantment with Congress under which growth has slumped to 4.7 percent, half the level it reached during India’s boom years. Modi’s chances of leading India were widely written off over charges he turned a blind eye to riots in 2002 that left at least 1,000 people, mainly Muslims — allegations he has always denied.
But Gujarat’s reputation as one of India’s fastest growing states — it expanded by nearly 10 percent annually over the last five years — and its easy investment policies have won him national favour.
Investors hope Modi, who has a reputation for quick decisions and clean governance, will be able to replicate his policies nationally and boost growth.
But some analysts question the BJP’s pro-market credentials as well as the ability of Modi, who has an abrasive reputation, to forge a consensus for change in the faction-ridden populist political scene. The BJP vociferously opposed moves to open up India’s still largely closed economy while in opposition, fighting such measures as legislation to allow foreign supermarkets into the country.
Analysts add that it is unlikely a BJP government could kick-start investments and revive the stalled investment cycle. Just a fourth of investment projects are stuck with the central government, and two-thirds of these are in power and steel which are both reeling from massive overcapacity.
“Even elsewhere — roads, railways, etcetera — solutions will take years,” said Credit Suisse economist Neelkanth Mishra, calling the elections “much ado about nothing”.
And there are worries about Modi’s hardline Hindu politics, and the fear he could upset the secular landscape in India where Muslims make up around 13 percent of the population.
The BJP, and Modi in particular, have cultivated an image of macho nationalism that has the potential to exacerbate bilateral tensions and “roil markets”, noted Anjalika Bardalai, analyst at Eurasia Group. 

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