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The Congress appears to be living in denial, which is why it blames everything on either global factors or on a belligerent opposition. So far, domestic brokerages and market participants have been commenting on poor governance and policy flip-flops, but now a reputed analyst like Chris Wood of CLSA is commenting on Modi-mania and how Gujarat’s chief minister stands to gain from Congress' ills.
In his weekly commentary, Wood says: “The Indian stock market’s greatest hope in this respect is the emergence of Gujarat Chief Minister Narendra Modi as the BJP’s prime ministerial candidate. While the odds are definitely stacked against him, Greed & Fear’s view is simply that the worse the sense of crisis the better Modi’s chance of winning."
India is currently staring at a sovereign downgrade as economic fundamentals continue to head south and the currency has gone into free-fall. Over the last few weeks, India has been mulling to seek help from International Monetary Fund, which will in some sense be going back to the 1991 era, when India had to get a lifeline from the IMF. It’s the repercussion of such a move at the hustings in 2014, which is scaring the Congress. Wood says “this would be political suicide for the Congress.”
Foreign investors are surprised that India is considering such a move as India’s debt market has very little exposure to foreign investors. Only 1.6% of government securities are owned by foreigners. In that sense India need not worry much about foreign investors pulling out of the debt markets.
However, it is a different story for equities as FIIs own 22.4% of Indian equities. FIIs have sold only $3.2 billion in equities, which is remarkable. Going forward, this may change as in dollar terms returns for FIIs have come down over the years from quality stocks like HDFC and ITC. India is far from its worst, and more trouble is likely.
