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India: the world’s largest election

14 May 2019

GAM Investments’ Tim Love explores the Indian election process and the outlook for equities here as the world’s largest democracy heads to the voting polls.

The world’s largest general election is already underway in India with the ruling Hindu nationalist party Bharatiya Janata Party (BJP) headed up by Narendra Modi battling it out against the Indian National Congress Party (Congress) presided by Rahul Gandhi. Gandhi hails from the prominent Nehru-Gandhi lineage, a family that has been incredibly dominant in Indian politics for decades. His party represents the main opposition camp to Modi in the general election.

The mechanics of voting in India is a complex matter owing to the size of the vast population. From 11 April to 19 May, some 900 million Indians will cast their ballot across 29 states – that amounts to more people than the total population of the US and European Union combined. Voting takes place across seven phases in total so that security forces across India can ensure a safe and fair election.

India's lower house of parliament the ‘Lok Sabha’ has 543 seats. Any party or coalition needs a minimum of 272 MPs to form a majority government. In turn, they elect their leader who then becomes the country's prime minister.

The election is being closely watched by market observers as the outcome could dictate the ongoing pace of India’s significant economic reform programme that was launched by the Modi government. This has included the introduction of the Goods and Services Tax (GST) bill – a constitutional amendment that allows a single national indirect tax to replace a plethora of state and national taxes levied on a number of goods and services – as well as policies to rapidly digitise the Indian economy (see recent article on India’s digital revolution).

Both the BJP and Congress parties have targeted similar issues in their election manifestos, but have proposed different methods to achieve these goals. While the BJP has prioritised national security, the Congress party has concentrated more on restoring financial stability. Both manifestos cover a range of issues that have been a burden to citizens – from jobs to women’s safety, as well as national security / terrorism.


Modi’s policies centre around national pride and identity. Many believe he has demonstrated dynamic and decisive action in tackling security issues – Modi’s authorisation of airstrikes on Pakistan in response to a deadly attack in the Kashmir region has been a recurrent theme in election speeches. The BJP is also counting on welfare programmes – including the provision of sanitation, electricity connections and cooking gas for the poor – to woo voters.

The BJP party has also promised in its manifesto to lower the GST rate, reward honest taxpayers and improve compliance matters. A simplification of the processes involved in the GST architecture is another priority for the party. Its manifesto also says it will work towards making India the world’s third-largest economy by 2030.

However, the Modi government continues to be criticised for failing to create enough jobs and to reduce the distress prominent in the agriculture sector which continues to experience high levels of farmer suicides.

Congress Party

The Congress party released its manifesto for the 2019 Lok Sabha elections on 11 April, which pledges to create more jobs as well as promising a minimum wage guarantee of 6,000 rupees (or USD 87) a month for the poorest 20% of the population. Gandhi said if he is voted to power, his government would aim to eliminate poverty by 2030 and "usher in an era of simplicity, transparency, tax equity, easy compliance and impartial administration".

Some analysts believe that a BJP-led coalition government is likely to emerge after the polls and that this would likely boost sentiment. According to the Economist Intelligence Unit, there could however be difficulties in managing the various interests of such a coalition’s constituent parties – progress on reforms aimed at improving the business environment could be slow and subject to political pressures. If this transpires, it is a situation we shall monitor closely.

Turning to the Indian equity market, we believe it is rich but at attractive valuation levels. We believe that further market upside from here will need fresh impetus such as better-than-expected earnings growth at the corporate level or full clarity after the election, for example, a single party winning a clear majority enabling it to focus on the future of the reform programme.

In terms of exposure to India, we are extremely positive on the financial sector, especially private banks since loan growth and margins have starting improving and many of them appear to have resolved whatever capital issues they had in the past. On the other hand, we remain cautious with regards pure telecom players where we believe that returns will remain low for an extended period of time.

Ultimately we believe that while any change in government could pose a risk to the pace and nature of India’s reform programme, most political candidates seem to be pro-business and India’s growth engine is showing no signs of slowing. However, we feel that careful stock selection will be essential in order to reap rewards from this market as the country’s business landscape is likely to evolve quickly after the election results are announced.

Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development.