Modinomics losing appeal to investors
MUMBAI: After pouring $45 billion into Indian stocks over the past six years on hopes that Prime Minster Narendra Modi would unleash the country’s economic potential, international money managers are now unwinding those wagers at a record pace.
Foreigners have sold $4.5 billion in Indian shares since June, on course for the biggest quarterly exodus since at least 1999.
“The euphoria around Modi before 2014 has tapered off,” said Salman Ahmed, the London-based chief investment strategist at Lombard Odier Investment Managers, which oversees $52 billion in funds.
It’s hard to fault investors for losing faith. India’s economic growth has decelerated for five straight quarters to 5%, the weakest level since early 2013. Car sales are sinking at the fastest pace on record, capital investment has plunged, unemployment is at a 45-year high, and the banking system is hamstrung by the world’s worst bad-loan ratio.
While Mr Modi isn’t sitting idly by, investors say he’s been slow to act on a long list of needed reforms that includes selling stakes in state-owned companies and revamping labour laws.
The growing worry is that India could be headed for a structural slowdown that pummels its $2-trillion stock market, hits the growth plans of international companies and makes it increasingly difficult for the Bharatiya Janata Party (BJP) to deliver jobs for the millions who enter the workforce every year.
“If the economy is not rectified, Modi has about six more months until people start challenging him,” BJP lawmaker Subramanian Swamy warned recently.
But even despite the recent outflows, foreigners’ net stock purchases of $6.8 billion this year are the highest after China among Asian markets.
While many of India’s problems predate Mr Modi, critics say his handling of the economy has been disappointing. His 2016 decision to invalidate 86% of the country’s currency in circulation became a growth-sapping boondoggle, and the 2017 goods and services tax reform has been panned as too complicated. Early attempts to simplify land and labour laws were reversed in the face of social and political opposition.
The BJP leader has won plaudits for keeping prices in check, passing a new bankruptcy law and recapitalising troubled lenders. But the revolutionary changes that many investors expected from Modinomics have so far failed to materialise.