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Business News/ Opinion / Online Views/  How the stock market views Narendra Modi
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How the stock market views Narendra Modi

Modi has always been pro-business, which is what counts in the market

Gujarat chief minister Narendra Modi. Photo: Hindustan Times (Hindustan Times)Premium
Gujarat chief minister Narendra Modi. Photo: Hindustan Times
(Hindustan Times)

Christopher Wood, chief equity strategist at foreign brokerage CLSA Asia Pacific Markets, said in his newsletter on 22 August: “The Indian stock market’s greatest hope… is the emergence of Gujarat chief minister Narendra Modi as the BJP’s prime ministerial candidate." That sentiment is echoed by practically everybody in the market.

The reason is simple. Modi has always been pro-business, which is what counts in the stock market. Many commentators have said Gujarat scores badly on social indicators. The markets don’t really give a damn. What they want is not inclusive growth, but earnings growth.

Some have argued that we need to have growth before we start distributing the fruits of development. The market is not interested in that debate either. Distribution raises the spectre of more government spending, a higher fiscal deficit and the possibility of higher interest rates, all anathema to business and to investors.

A minimum of distribution to avert social strife may be inevitable, but anything beyond that is unwelcome. Thousands of crores spent on sops for industry are an incentive, but money spent on ensuring food for poor families is a subsidy.

Modi’s track record of development also inspires confidence. Some say that while Gujarat’s growth has been high, there have been other states that have done equally well. But, has any other chief minister built up the kind of charisma exuded by Modi? It doesn’t matter if part of it is hype—perception makes a big difference. The packaging is even more important than the content. These days, even ordinary folk need to package their personalities to be sold in the job markets. We are all salesmen now.

A leader must not only lead, he must be seen to do so, in order to inspire confidence. And confidence is all-important for the markets. The sole difference between D. Subbarao and Raghuram Rajan is that the latter comes across as much more self-assured.

Some may argue that the stock market is a microscopic part of Indian society and its opinion doesn’t count. They would be completely wrong. During the boom years of 2003-07, the discovery of India by foreign investors led to a euphoric rise in the market, which allowed companies to raise money cheaply, which allowed them to expand capacity and the result was a virtuous circle of growth and wealth and job creation.

The markets are terribly important for the economy. Foreign investors are even more so, for the dollars they bring in help bridge the country’s current account deficit. In 2010, multinationals based in China were responsible for 68% of its trade surplus. Why else did finance minister P. Chidambaram hold those road shows abroad if not to sell India to foreign investors? Modi is an even better salesman. Earning the trust of investors, both domestic and foreign, is absolutely critical.

But, isn’t the Congress the original party of economic reform? That is true, which is why the Sensex went up 2,000 points when the news came in that the United Progressive Alliance had won the 2009 election without the support of the Left. But that hope has been completely demolished. Not only did UPA-II see an orgy of corruption and utter mismanagement, a section of the party believes that more sops for the masses will ensure re-election. Why else did they push through the land acquisition law, so inimical to industry? The party, in a confused attempt to project itself as social democratic, has vacated space on the political right to the Bharatiya Janata Party, in spite of identical views on most economic policies.

That is why businessmen and the markets are overwhelmingly for Modi. He has also been projected as having a decisive personality, but everything depends on what a leader is decisive about. The markets would hate a strong-minded personality on the Left. The fact is you cannot have a capitalist economy and not do what capitalists want to be done, especially in these times of globalisation. You cannot expect capitalists to be the engine of economic growth and then put a spoke in their wheels. Look at the pickle the social democrats of Europe find themselves in. As Maggie Thatcher pointed out long ago—TINA, or there is no alternative.

Will Modi be a polarising force for Indian society, as many observers believe? That is of no consequence for the markets. The markets took no notice of the carnage in Muzaffarnagar, just as our media took little notice of the bomb blast in Imphal. As long as the polarisation doesn’t happen along class lines, it doesn’t really matter.

But there are many populist elements in the BJP’s economic agenda. Modi opposed foreign direct investment in retail and wanted a more comprehensive food security law. BJP legislators waxed eloquent about the benefits to farmers from the land acquisition legislation. The problem is that India’s economy is trying to take off while having all the trappings of democracy, a feat attempted by no other late-developing country in the world. No party, if it wants to win elections, can be seen as ignoring the masses. But the BJP has its Hindutva ideology, which diverts attention from issues of social justice. And its support base is certainly not among the poor. That is why the markets believe it will be less populist than the Congress.

Some may find the stock market’s attitude cold-blooded and callous. Keynes explained it thus in 1930: “For at least another 100 years, we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not." He was, of course, an incurable optimist.

Manas Chakravarty looks at trends and issues in the financial markets. Your comments are welcome at capitalaccount@livemint.com

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Published: 15 Sep 2013, 11:30 AM IST
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