Investors give thumbs up to Modi ahead of polls

Asset Class in Focus

Indian funds have produced solid returns during Modi’s prime ministerial tenure, but there are doubts that his mixed performance will retain the confidence of his electorate.

India goes to the polls this week to pass judgement on prime minister Narendra Modi’s self-styled reformist government. The country’s 900 million eligible voters will begin casting their votes in a weeks-long process that will determine whether he and his Bharatiya Janata party (BJP) has lived up to the high expectations he raised of a “New India”, when he took power in 2014.

Modi had replaced the previously entrenched Congress Party with a vision of a modern, developed economy shaped by business incentives, less bureaucratic red-tape, a crackdown on corruption, poverty reduction and a more powerful global presence, while also retaining the traditional values of his Hindu constituency.

The ledger of accomplishment and disappointment seems balanced. Economic growth has slowed recently, unemployment has risen, the current account deficit is widening and farmers have demonstrated angrily at measures aimed at reducing inflation.

On the other hand, the missile strike on a Pakistani terrorist training camp on 26 February in response to a atrocity in Kashmir a few days earlier, gave Modi’s popularity a tremendous boost, according to press reports.

The results of the election will not be known until 23 May.

International investors, however, have had five years to assess the Modi administration’s ability to deliver on its promises. The comparative performance of the MSCI India index suggests they have given it the benefit of the doubt.

Since 12 May 2014, when Modi was declared victor, India equity funds on average have outperformed relevant indices in US dollar terms.


The India equity fund category versus key indices 

Source: FE Analytics. Cumulative performance in US dollars since Modi was confirmed as victor on May 12 2014.

Meanwhile, the best performing dedicated India funds available to Hong Kong and Singapore retail investors have significantly outperformed all three indices.

The JP Morgan India Smaller Companies Fund has produced a 117.22% cumulative return during the five years since Modi’s election. It is followed by the First State Indian Subcontinent Fund (92.76%) and the Pinebridge India Equity Fund (83.43%). The comparative performance of the sector average is 48.21% — above the weighted market capitalisation-based MSCI India index.

The JP Morgan fund is predominantly invested in industrial, financial and consumer products sectors, the First State fund also has large exposure to financials and consumer products in addition to the telecom, media and technology (TMT) sector, and the Pinebridge fund’s holdings are more evenly spread across healthcare, industrials, basic materials, TMT, financials and consumer products.

All three funds are substantially diversified away from the top 10 holdings in the MSCI India index.


Comparative performance of top three India funds

Fund

Five-year cumulative return %

Annualised volatility %AlphaFE crown rating

OCF %

JP Morgan India Smaller Companies

117.22

18.537.99*****

1.75

First State Indian Subcontinent

92.76

14.077.17*****

1.10

Pinebridge India Equity

83.43

15.455.63***

1.21

Sector Average

48.21

15.800

1.86*

Source: FE Analytics. Performance from 12 May 2014 to 5 April 2019 in US dollars. *median

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