Jefferies said the Prime Minister Narendra Modi's prospects of getting re-elected in 2024 general elections is a consensus view and that the inevitable questioning of this current consensus would be one obvious worry for the stock market over the next 12 months. The political season is approaching in India with general elections May next year, it said adding that despite the recent victory of the Congress Party in Karnataka on May 10, the overwhelming view remains that Narendra Modi and the BJP government will be re-elected, albeit perhaps with a reduced majority.
In the 2019 elections, BJP won 303 of the 543 elected seats in the Lok Sabha.
"This time the educated guess of pundits is around 270 seats. What about the Karnataka defeat? The view is that in state elections local issues tend to dominate. Indeed the track record is that Karnataka has not re-elected an incumbent government since 1985. But in a national election the electorate votes on the big issues and here the dramatic changes wrought by Modi after ten years in power have been phenomenal," Jefferies said.
Jefferies cited the transformation of physical infrastructure, where the fiscal deficit has in recent years been primarily spent on investing in infrastructure and not on entitlements.
"The result is that the huge deficiencies in infrastructure, so visible when GREED & fear first visited the country on a business trip back in 1996, have now been largely addressed. This has to lead to an improvement in the return of capital with one example among many the nearing completion of the two dedicated freight rail corridors. This will massively reduce the time moving goods from Delhi to Mumbai, for example, from at least 24 hours to 12-15 hours."
Jefferies said if the infrastructure upgrade is one big positive change, another one which impacts everybody is the distribution of targeted welfare via the use of technology and the successful exploitation of combining the Aadhaar electronic ID card developed during the previous Congress government with the Direct Benefit Transfer (DBT) scheme.
Jefferies said the practical result of DBT has been a dramatic decline in leakages in the distribution of welfare which helps explain why the support for the BJP, traditionally a party of small businessmen and traders, has spread to the urban poor and rural constituencies.
"Other life-transforming changes under Modi include the construction of public lavatories in villages and the provision of running water. Clearly, the negative rap on the BJP government is that it is exploiting ethnic divisions to run on a “Hindu supremacist” agenda. This explains the continuing critical coverage of Modi in the Western media, most of whose Indian correspondents talk only to the traditionally champagne-socialist intelligentsia so visible on English language Indian TV channels," Jefferies said.
The reality, Jefferies said, is that there has been a massive surge in popular aspirations since Modi was first elected in 2014 and also a related massive increase in India’s self- confidence as a country, it said.
Jefferies said it recently noted that the Chinese people post-pandemic no longer have an unbridled confidence in the future of their country; the reverse now applies in India amidst much fashionable talk, which is no longer completely far-fetched of India becoming the major beneficiary of production being moved out of China in the next ten years, the foreign brokerage said.
"Certainly Apple’s CEO Tim Cook, who has as urgent a need to diversify out of China as anybody given
the ongoing geopolitical tensions, went to great lengths to highlight India in his most recent quarterly earnings call on 4 May. He mentioned the country no less than 20 times, not only as regards to its importance as a growing consumer market for iPhones but also as a growing source of production."
Jefferies said the other way India’s increased national self-confidence has been manifested on the world stage in the past year and more has been as regards its purchasing of cheap Russian oil. Despite initial pressures from Washington on Delhi, the Modi government has been consistent in its public stance that it will continue to act in its own national self-interest, which is to buy cheap Russia oil, it said.
"This stance was helped by the understanding that as the next big domestic market for American companies, such as Apple, to target it makes no strategic sense for Washington to pick fights with both Beijing and Delhi," Jefferies said.
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