(Bloomberg) -- What sort of government will India have after the next general election? There’s no clear answer to that this far out and the greater the uncertainty, the more difficult it will be for the nation’s equities to make headway in the run up to the vote, according to Morgan Stanley.
“The world’s biggest democratic elections (about 930 million voters) are 12 months away and the market is likely to start pricing in an election outcome in the coming months,” Ridham Desai and Sheela Rathi, analysts at Morgan Stanley India Co. wrote in an April 16 report. “The biggest investor concern: a weak coalition government, one loath to quick administrative decisions, inducing political uncertainty.”
The Narendra Modi-led Bharatiya Janata Party government, that got the biggest mandate in 30 years in 2014, risks erosion in voter support amid issues ranging from its perceived inability to bring to book the culprits of a nearly $2 billion bank fraud, to the backlash over its failure to act on growing outrage over two brutal rapes.
India’s equity benchmarks, the S&P BSE Sensex and the NSE Nifty 50 Index, are little changed so far this year after surging at least 28 percent in 2017.
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“The market appears unsure of whether India will re-elect a majority government in 2019. If this uncertainty rises, we think stocks will struggle to rise in coming months,” Desai and Rathi wrote.
Morgan Stanley advises investors to take “a barbell approach,” retaining a mix of high- and lower-risk stocks in the portfolio. The brokerage recommends blending defensive and cyclical businesses, with preference for large-sized companies.
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