Portfolio Manager of Ellerston Asia, Dr Mary Manning and Deputy Portfolio Manager, Fredy Hoh, discuss their insights on different scenarios and probabilities for the upcoming Indian General Election backed with observations made by Fredy Hoh on his most recent trip to the key swing state of Uttar Pradesh.

Keep reading below or download the article here.

Who is going to win the Indian Election?

The Indian General Election is coming up on May 23, 2019. Our base case is that Modi is returned as Prime Minister and the BJP gains a majority of seats, or at least retains power in a coalition with the National Democratic Alliance (NDA). This has been our base case for many months now, but the probability of a favourable outcome for Modi and the BJP has risen in recent weeks in the wake of the skirmish with Pakistan and Modi’s assertive handling of the situation.

The table below outlines different scenarios and probabilities.

* NDA is the National Democratic Alliance which is the coalition led by the BJP. UPA is the United Progressive Alliance which is the coalition led by Congress (INC).

Last week Deputy Portfolio Manager Fredy Hoh was on the ground in the key swing state of Uttar Pradesh, where he met with politicians from the BJP, Congress and minority parties and also spoke extensively to local residents and business people. Fredy’s time on the ground re-enforced our view that Modi will be returned to power and also provided some critical insights into what is going on in Indian politics. These include:

  1. The 2014 election was landslide victory for the BJP where the party doubled its number of seats from the previous election. This type of landslide, where a single party won a majority, had not been seen in India for approximately 30 years. Many commentators call the 2014 election the “Presidential election” in India, because it really was all about Modi. The 2019 election is shaping up in the same way.
  2. BJP has a clear strategy and vision for India while Congress appears rudderless with very few specific policies or long term vision. Their campaign is primarily anti-Modi and in the press they consistently play the man (Modi) not the ball (policies). This is a risky strategy because Modi’s personal popularity remains relatively high, even in states where Congress gained seats in recent state elections.
  3. As seen in recent polls, the India-Pakistan incident a few weeks ago galvanized support for Modi and the BJP. Similarities have been drawn to the Kargil conflict in the late 1990s and the strong win by the NDA in the following election.
  4. Rural voters could be a swing factor and/or introduce non-linear outcomes for seat distribution. Ghandi and Congress are rumoured to be contemplating a minimum guaranteed income policy to woo low income rural voters. How they are going to pay for this (estimated to cost INR 3.7 trillion) remains unclear.

Since Prime Minister Modi was elected in 2014 he has made remarkable progress in terms of structural reform. India’s GDP growth is among the highest in the world at over 7%, inflation is low, demonetization cracked down on corruption and the GST has been implemented to improve productivity nationwide. The government and the RBI have worked together to clean up the banking sector and the consumption story of the Indian middle class remains strong. No wonder India is one of the best performing markets in the world since 2014.

The Ellerston Asian Investments (EAI) has been overweight India since inception in 2015 and in 2017 we launched the Ellerston India Fund to take advantages of the growth and investment opportunities India has to offer. We can’t wait to see what happens on May 23.

Mary Manning

Mary is a member of the investment team and is a Portfolio Manager for Ellerston’s listed investment company, Ellerston Asian Investments Ltd. Mary has over 17 years investment management expertise and joined Ellerston in 2012. Mary first worked in Asia in 1997 and has been investing in the region since 2001. Prior to joining Ellerston Capital, Mary worked at Oaktree Capital in New York and Singapore. In Singapore, she was the sole person responsible for financial sector investments for the firm’s Global Emerging Markets Hedge Fund.

Mary also worked as an investment analyst at Soros Fund Management in New York, the investment vehicle of George Soros. She focussed on investments in the financial sector in the US, Asia, including Japan and Europe.

Mary has a PhD in Economics from the University of Sydney, an MBA from Harvard Business School and a Bachelor of Commerce degree from the University Of Calgary, Canada.

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