 "Better PLI execution on cards if Modi returns to power, says report")
If Prime Minister Narendra Modi wins a third term in office, investors will be looking at better execution of production-linked incentive (PLI) schemes to make India an exports hub, growth in public capital expenditure (capex), and privatisation of state-owned enterprises (SOEs), the Paris-based bank Societe Generale said in a research report on Tuesday.
The seven-phase general elections for Lok Sabha kicked off on April 19. "The consensus of the opinion polls is pointing to a return of the Bharatiya Janata Party (BJP)-led alliance, the National Democratic Alliance (NDA), with a full majority. The market started to price in policy continuity since the victory of the incumbent ruling alliance in state elections in December. A change of guard could lead to a correction in the short term, similar to what we saw in 2004. However, what would matter in the medium term is a stable government," it said.
The French banking group said the turnaround in the investment cycle that started from 2018-19 has further gained pace over the last two years after a COVID-led disruption in 2020 and 2021. "An almost 100 per cent increase in capex over the past four years has been the hallmark of the Modi government’s second term. Going forward, the government might have to moderate the rate of growth to move closer to its fiscal deficit target of 3 per cent. However, public capex is key in sustaining the upturn in the investment cycle and supporting private capex recovery. Hence, capex growth would be a factor to watch for sustained support to earnings growth," it added.
Societe Generale said almost three years since the launch of the PLI scheme, the offtake as measured by subsidies given has been low. "As per government data, about $100 billion of sales have been generated because of the PLI scheme. That is less than 20 per cent of what was estimated at the launch of the scheme. However, some success with Apple iPhone exports and potential discussions with Tesla are some credible successes on the international front. The continuation of more foreign firms starting to manufacture/base operations in India along with the realisation of PLI goals would be a factor to watch," it added.
The Paris-based bank said SOEs have significantly re-rated in the past three years, creating less ambiguity about their valuation in the bid process and, secondly, given the overall increase in public capex, some of these companies are also beneficiaries of this theme which may facilitate their privatisation process. "The government also devised a 'Disinvestment Policy' in 2021, under which it aimed to strategically privatise SOEs or partially reduce its stake in them. However, except for the privatisation of the unlisted airline Air India, the government was unsuccessful on that initiative partly due to the COVID-led disruption and the lack of successful bids," it added.