India goes to the polls this week to decide whether to re-elect prime minister Narendra Modi’s self-styled reformist government or ask for change.
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.
International investors have had five years to assess the administration’s ability to deliver on its promises. The comparative performance of the MSCI India index, for instance, suggests they have given it the benefit of the doubt.
Since 12 May 2014, when Modi was declared victor, India equity funds have, on average, outperformed relevant indices in US dollar terms.
Not everyone is happy
However, 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.
But all this was overshadowed by rising tensions between India and Pakistan that resulted in a missile strike on a Pakistani terrorist training camp on 26 February following a deadly attack in the disputed territory of Kashmir, which gave Modi’s popularity a tremendous boost, according to press reports.
Elections results
The country’s 900 million eligible voters will begin casting their votes in a process lasting several weeks that will determine whether he and his Bharatiya Janata party (BJP) have lived up to the high expectations of the “New India” he promised when he took power in 2014.
The results of the election will not be known until 23 May.
The India equity fund category versus key indices
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.
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