India Prime Minister Narendra Modi won a third term last week. But his party didn’t sweep to the expected landslide. That means Modi will have to form a coalition government. Despite that disappointment, the MSCI India Index gained almost 1.80% last week. And that indicates global investors are mostly pleased that Modi won another term.
That could pave the way for more upside for India ETFs like the WisdomTree India Earnings Fund (EPI) and the newly minted WisdomTree India Hedged Equity Fund (INDH). INDH could be noteworthy for advisors and investors looking to allocate to India stocks over the near term if the rupee weakens amid concerns about Modi's ability to piece together a government composed of not only his party, but others that are aligned with some of his views.
Yet there could be value in Modi and the BJP being forced to work with other political parties. That could stoke more broad-based, thoughtful approaches to important issues such as infrastructure spending and liberalizing India’s financial markets. Both of those issues could act as longer-ranging catalysts for EPI and INDH.
India ETFs Still Merit Consideration
India ETFs have been among the brightest spots in EM investing over the past several years. Much of that bullishness is attributable to Modi’s reformed-minded approach to the country's economy and financial markets. It’s likely that methodology will continue over the course of this third term.
“In his victory speech, Modi promised even bolder reforms in his third term. [He also] pledged to grow India to the third-largest economy in the world by the end of this decade. He has plans to turn India into a developed economy by 2047—the 100-year anniversary of India’s founding,” according to WisdomTree research.
Another Page From the Modi Playbook
Another page from the Modi playbook that could extend in his third term is aiming to expand India’s status as a manufacturing hub. That could have positive implications for EPI and INDH.
Related efforts should be appealing across party lines. And India has opportunity to strike while the iron is hot. That's because many multinational companies are looking to diversify manufacturing bases away from China.
“Modi 3.0 has ambitious targets to increase India’s share in global manufacturing from under 3% to 5% by 2030 and to 10% by 2047. We shall see more focus on Make in India with subsidies, tax benefits and policy support. This is also aligned with a global trend of firms looking to bolster supply chain resiliency away from a dependency on China,” added WisdomTree.
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