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The recent Indian general election produced unexpected results that have significant implications for the country's political landscape. Arjun Jayaraman, portfolio manager for Causeway’s Emerging Markets equity strategy, shares key points highlighting the election outcomes, their government and market reactions, and our perspective on India's future growth potential and portfolio performance:
1. The Narendra Modi-led Bharatiya Janata party (“BJP”) underperformed in the Indian general election, despite exit polls forecasting a strong win. Current news reports indicate the party has secured approximately 240 seats in the 543-seat lower house—short of the 272 needed for a majority and well below their 2019 total of 303.
2. The National Democratic Alliance, a coalition of center-right to right-wing parties headed by the BJP, is expected to win 290-300 seats—enough to form a government, but Modi will have to rely on his alliance partners.
3. For Modi’s upcoming third term, economic reforms may be harder to implement as Modi will need alliance support, potentially leading to more populist measures like subsidies and cash handouts. However, we believe the BJP will continue to pursue its reform agenda.
4. We believe the structural drivers of India’s long-term economic growth—a young and growing workforce, technological innovation, urbanization, and infrastructure development, among others—remain stable and the long-term outlook broadly positive.
5. In Causeway’s emerging markets strategy, as of June 4, 2024, the portfolio has a 20% weight in Indian securities, a modest 1% overweight versus the MSCI Emerging Markets Index.
6. We remain confident in our India exposure due to valuation support—the portfolio’s Indian stocks currently trade at significant price-to-earnings discounts versus the MSCI India Index. Market volatility may provide repositioning opportunities.
This commentary expresses Causeway’s views as of June 4, 2024 and should not be relied on as research or investment advice regarding any stock. These views and any portfolio holdings and characteristics are subject to change, and Causeway undertakes no duty to update any such forecasts. There is no guarantee that any forecasts made will come to pass. International investing, particularly in emerging markets, involves risk.
