Russia has the election meddlers. Brazil is jailing former beloved presidents and is now led by a “tropical Trump,” and China has a trade war. What does quiet India have that’s worth watching? Of the big four emerging markets, India looks boring.
Once drama-free, India has now drawn attention to itself with an Indian Air Force strike against a Pakistani terrorist camp this week. The crisis, if it lasts, is seen helping incumbent Prime Minister Narendra Modi, who is trying to keep the Gandhis away from power. The general election begins in April. Modi will run against Rahul Gandhi.
“I always rated Modi’s prospects in the forthcoming elections as 50:50,” economist Swaminathan Aiyar was quoted saying in The Economic Times.” This may now boost Modi’s prospects,” he said, adding that a lot will depend on how Pakistan responds to this week’s airstrike inside its borders.
Indian stocks responded with their biggest decline in almost two months on Tuesday before recovering shortly afterward.
The Wisdom Tree India (EPI) exchange-traded fund remains one of the biggest drags in a passive emerging market portfolio. The ETF is down 3.3.% this year, while the MSCI Emerging Markets are up over 11%. Over the last 12 months, the India ETF is down by 11%.
Modi has been good for the Indian economy and for investor sentiment. The market is up over 40% since he was elected in May 2014.
A poll last week by the Times of India said that 83% of over 2,000 respondents said Modi coalition parties in the National Democratic Alliance (NDA) would keep the lower house of Congress, known as the Lok Sabha, or House of the People. The prime minister is chosen by the majority coalition of the lower house.
The poll also suggested that Modi has a high approval rating, with an equal number of respondents saying they would want the NDA to pick Modi as prime minister assuming they keep the majority of the 545 seats. They have 341. Gandhi’s United Progressive Alliance has 68 seats. Gandhi needs an alliance of roughly 230 seats to pick him over Modi. He is considered to be the other possibility if Team Modi loses.
On Monday, Modi got a lift from nationalists after his Air Force carried out surgical strikes against militia training sites in neighboring Pakistan. Although the government did not say this, it is believed that India targeted sites affiliated with the Muslim jihadi group Jaish-e-Muhammad following an attack on a Central Reserve Police Force convoy in Pulwama less than two weeks ago. Pulwama is in the disputed Kashmir district on the border between the two countries.
This is said to be the first cross-border air strike India has carried out in nearly 50 years. In an official statement by the Foreign Affairs Ministry on Tuesday, the government blamed the death of 40 reserve police officers on Pakistan-based terrorist group Jaish-e-Mohammad. The U.S. and United Nations labeled JeM an international terrorist group back in 2001.
Information regarding the location of training camps in Pakistan has been provided to Pakistan by India from time to time, but Pakistan denies their existence, the Foreign Affairs Ministry said yesterday.
Modi ended the year weaker than he was a year earlier. Last year, BJP party was seen dominating the Lok Sabha again in 2019. But once December rolled around, some poor showings by Modi-backed candidates worried investors. It’s one of the reasons why India has been an underperformer. That and slightly higher interest rates while other big emerging markets, like Brazil and China, are cutting interest rates instead.
Monday’s show of strength against a common national foe may have given Modi a shot in the arm. Not that he needs it all that much against the United Progressive Alliance’s main man Rahul.