Test of endurance: Narendra Modi's second lap outruns Manmohan Singh's

But 10-year returns finish line still elusive

The market performance under the National Democratic Alliance’s (NDA’s) second five-year term has been better than that of the United Progressive Alliance’s (UPA’s) second tenure. However, the composite return for the 10-year term under Manmohan Singh has been better than that under Narendra Modi.

The benchmark S&P BSE Sensex rose 87 per cent during Prime Minister Modi’s second term, compared to an 80 per cent gain during his predecessor Singh’s second term. However, the 30-share index increased 2.7x during Singh’s first term, against just a 55 per cent rise during Modi’s first term.

As a result, the Sensex delivered 5x returns during the 10 years of UPA government rule from 2004 to 2014 and 3x during the last 10 years of the NDA’s rule.

Both governments had to endure major economic and market shocks — the global financial crisis in 2008 and the Covid-19 pandemic in 2020.

The past 10 years also saw turbulence due to major policy decisions, but these led to the formalisation of the Indian economy. Some of these include demonetisation in November 2016, the implementation of the goods and services tax (GST) in July 2017, the Insolvency and Bankruptcy Code in May 2016, and the corporate tax cut in September 2019.

Although markets corrected sharply in the immediate aftermath of the pandemic and some of the major policy disruptions, they recovered and facilitated the financialisation of savings. This brought significant domestic inflows into the equity markets through mutual funds and direct investing, reducing India’s dependence on foreign portfolio investor (FPI) flows.

“It is only in the last few years that domestic investors are calling the shots. Otherwise, it was only the FPIs. The economy was doing well when Manmohan Singh became Prime Minister, and taking off from there was relatively less difficult. Modi inherited the economy when India was among the ‘fragile five’. But to his credit, he championed reforms that his predecessors had feared to tread, like GST or huge investments in infrastructure,” said U R Bhat, co-founder of Alphaniti Fintech.

Bhat added that rising domestic investor interest and the impact of major policy changes will help Indian markets deliver better returns going forward.