BackQuestioning Modi's re-election in 2024 an obvious worry for stock markets: Chris Wood of Jefferies
Despite the recent victory of the Congress Party in Karnataka on May 10, the overwhelming view remains that Narendra Modi and the BJP government will be re-elected, albeit perhaps with a reduced majority, according to Jefferies.
PremiumPrime Minister Narendra Modi's prospects of getting re-elected in the 2024 general elections is a consensus view and the inevitable questioning of the current consensus would be one obvious worry for the stock market over the next 12 months, global investment banking firm Jefferies said in its GREED & fear newsletter.
“The reality is that there has been a massive surge in popular aspirations since Modi was first elected in 2014 and also a related massive increase in India’s self-confidence as a country," the newsletter said.
In the 2019 elections, the BJP won 303 of the 543 elected seats in the Lok Sabha. This time the educated guess of pundits is around 270 seats. Despite the recent victory of the Congress Party in Karnataka on May 10, the overwhelming view remains that Narendra Modi and the BJP government will be re-elected, albeit perhaps with a reduced majority.
“The view is that in state elections, local issues tend to dominate. Indeed the track record is that Karnataka has not re-elected an incumbent government since 1985. But in a national election the electorate votes on the big issues and here the dramatic changes brought about by Modi after 10 years in power have been phenomenal," Wood wrote in the GREED & fear newsletter.
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Sensex to hit 1-lakh mark in 5 years
Chris Wood also said that it will only be a matter of time before Sensex reaches the 100,000 level. "This target, on a five-year view, now assumes trend 15 percent EPS growth and that a five-year average one-year forward PE multiple of 19.8x is maintained," he stated.
He sees np 'obvious near-term trigger' for a further valuation de-rating of stocks of Indian companies if the Reserve Bank of India pauses tightening of its monetary policy. "If the monetary tightening cycle is over, with rate cuts coming either later this year or next year, there is no obvious near-term trigger for a further valuation de-rating," Wood wrote in the newsletter.
According to Wood, Indian stocks are not as 'expensive' either absolutely or relatively to the region as last year and has increased his overweight position in Indian, Korean and Taiwanese stocks by 100 bps in his Asia-Pacific ex-Japan portfolio. Last year in February 2022, Chris Wood in a note had stated that India's benchmark BSE Sensex to hit 100,000 on a five-year view i.e. by late 2026.
On DBT, infrastructure development
Jefferies, in its newsletter, cited the transformation of physical infrastructure in the country, where the fiscal deficit has in recent years been primarily spent on investing in infrastructure and not on entitlements.
‘'The huge deficiencies in infrastructure is so visible when GREED & fear first visited the country on a business trip back in 1996, have now been largely addressed. This has to lead to an improvement in the return of capital with one example among many the nearing completion of the two dedicated freight rail corridors.
This will massively reduce the time moving goods from Delhi to Mumbai, for example, from at least 24 hours to 12-15 hours. At present bulk commodities are largely moved by roads with the exception of coalwhere rail is more dominant," Wood said.
Jefferies said if the infrastructure upgrade is one big positive change, another one which impacts everybody is the distribution of targeted welfare via the use of technology and the successful exploitation of combining the Aadhaar electronic ID card developed during the previous Congress government with the Direct Benefit Transfer (DBT) scheme.
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