Traders shun Modi’s moves, go on the defensive

MUMBAI: Investors in India are shunning stocks expected to benefit from Prime Minister Narendra Modi’s re-election and are instead investing in defensive sectors.

The so-called Modi stock index, a term coined by CLSA, rose only 2% as the prime minister completed his first 100 days in office after winning a third term in early June. Consumer and software stocks, on the other hand, rose 20% and 34%, respectively.

Several recent policy changes underscore the uncertainty investors face after a decade of certainty as Modi increasingly relies on coalition partners.

This has raised concerns that stocks linked to government policy could continue to lag the broader market.

“There is a shift in focus from infrastructure to agriculture and consumer sectors,” said Sonam Srivastava, founder and fund manager at Wright Research and Capital Pvt.

She added that the rotation was influenced by recent volatility in global markets and the election outcome.

The government last month reversed a policy aimed at hiring market experts for senior government positions and postponed a bill on broadcasting services.

Modi’s party has also announced cash payouts in some states ahead of regional elections due later this year.

Mahesh Nandurkar, a strategist at Jefferies Financial Group Inc., wrote in a note that the administration is “becoming marginally populist.”

Nandurkar said he expected the government might miss its capex target, posing a major setback for sectors like infrastructure that have benefited from heavy investment in recent years.

There is no doubt that Modi’s shares still have a chance to outperform the country’s major stock indices for the fourth year in a row.

The index of such stocks has surged 24% in the first five months of 2024 as the prime minister prioritized building infrastructure capacity while focusing on boosting efficiency at state-owned enterprises. Still, investors remain skeptical of stocks tied to government policy. — Bloomberg