Goldman Sachs upgrades India citing Modi's improved chances of getting re-elected

• Goldman Sachs just raised its outlook on India to “overweight” on high foreign fund inflows.
  
• The high possibility of a Modi victory as well as monetary easing by the Reserve Bank of India (RBI), due to low inflation, has spurred foreign investor inflows, driving the rupee to a seven-month high.
  
• A second term for the Modi administration would boost the likelihood of a stable government and policy continuity.

It seems that the strong possibility of a re-election for the Modi administration in India’s upcoming national elections has made at least one international bank confident about India’s short-term economic prospects.

Goldman Sachs just raised its outlook on India to “overweight” on high foreign fund inflows, which have been driven by the prediction that Modi’s Bharatiya Janata Party (BJP) will likely secure a majority in the general elections. It had downgraded India to “marketweight” in September 2018 amid rising oil prices and a falling rupee.

The high possibility of a Modi victory as well as monetary easing by the Reserve Bank of India (RBI), due to low inflation, has also spurred foreign investor inflows, driving the rupee to a seven-month high.

“The (stock market) rally has been supported by revival in FII buying ahead of elections,” the Goldman Sachs report said. “Market expectations of a potentially stable government have risen over the past few weeks spurring foreign buying. FII have net bought US$4.5 bn in India over the past 1 month.”

A second term for the Modi administration would boost the likelihood of a stable government and policy continuity as foreign entities favour the continued emphasis of the government on economic reforms like the bankruptcy code and the single- indirect-tax regime.

Last year, India jumped 23 places to 77 on the World Bank’s ease of doing business index. The year before that, it leapfrogged a record 30 countries to get a ranking of 100 or below on the index for the first time.

The surge in Modi’s re-election chances is said to be due to the recent escalation of tensions with Pakistan in the aftermath of the Pulwama attack in mid-February. His image as someone who isn’t afraid of asserting India’s military might seems to be resonating with the masses.

Most opinion polls predict a comfortable majority for the BJP, with the average number predicted at 276 out of 543 seats in India’s lower house of Parliament.


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