Play These India ETFs to Bet on Modi's Likely Election Win

Sanghamitra Saha

30 April 2024 at 1:00 pm·3-min read

India’s stock market has been quite a good performer in recent times. ETFs like iShares MSCI India Small-Cap ETF SMIN, WisdomTree India Earnings Fund EPI and India Internet & Ecommerce ETF INQQ added 8.1%, 4.6% and 4.4% over the past one month (as of Apr 24, 2024).

Modi Likely to Win in Ongoing General Election?

India is undergoing general election. The process will continue in May as well. Votes will be counted on June 4. In the election, the market-friendly prime minister Narendra Modi is expected to win another term. Modi's tenure has seen significant investments from U.S. tech giants in India.

Investors should note that sustaining a growth rate above 7% for a third consecutive year, particularly amid backdrop of a global slowdown, could significantly enhance Modi's chances of securing a third term.

Along with robust economic growth, government initiatives like providing piped water and cooking gas, and the inauguration of a Hindu temple on a disputed site in the Hindu-majority nation in January are expected to enhance Modi's prospects of victory in the ongoing election.

Modi’s era is marked by strategic policy initiatives aimed at boosting growth and attracting foreign investment. Modi's leadership has been viewed as a determined effort toward digitization, infrastructural development and tax incentives, per a Barron’s article, as quoted on MarketWatch.

A coalition led by Narendra Modi's party could thus win nearly three-fourths of the parliamentary seats in elections that have started this month, according to a survey, while the main opposition Congress could hit a record low, per a Reuters article published in early April.

Since Modi and markets go hand-in-hand, the above possibility is a plus for India investing. Notably, foreign direct investment in India has surged in recent years, increasing from $36 billion in 2014 to $70.9 billion in 2023. This influx of investment is driven by India's growing reputation as a business-friendly destination.

Other Tailwinds

IMF Ups India GDP Growth Forecast

The International Monetary Fund (IMF) recently upped India’s GDP growth projection for 2024-25 by 30 basis points to 6.8% in its update to the World Economic Outlook (WEO), citing resilient domestic demand. IMF forecast a 6.5% expansion for the next fiscal year 2025-26.

India's Tech and Business Ambitions

India is actively promoting itself as a global hub for technology and business. States like Maharashtra, Tamil Nadu, Telangana and Karnataka are positioning themselves as tech hubs for manufacturing and AI development, as quoted on CNBC.

Major tech companies, including Apple, Google, and Amazon, have made significant investments in India. India is actively attracting investments from U.S. chipmakers. Companies like AMD and Micron are planning substantial investments in the semiconductor industry in India.

Fed to Cut Rates in Late 2024?

The Fed is likely to slash interest rates by late 2024, which should lower the strength in the U.S. dollar. If this happens, emerging market currencies would gain strength. And like most emerging economies, India’s economy too should experience a tailwind.

ETFs to Play

Against this backdrop, below we highlight a few India ETFs that have relatively lower valuation in the space, but have seen decent momentum this year. Notably, Columbia India Consumer ETF INCO has the highest P/E of 35.18X.

VanEck India Growth Leaders ETF GLIN – Up 7.3% YTD; P/E: 12.33X

WisdomTree India Earnings Fund EPI – Up 8.8% YTD; P/E: 12.38X

First Trust India NIFTY 50 Equal Weight ETF NFTY – Up 5.7% YTD; P/E: 17.01X

iShares MSCI India Small-Cap ETF SMIN – Up 6.9% YTD; P/E: 21.25X

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