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3 Years of Modi Govt: Change happens slowly, then all at once, May 17, 2017

In reviewing the Modi regime, the various reforms and initiatives are well documented, so we have taken a strategic, higher level perspective. In doing so, a holistic imprint emerges of a government that largely gets it, and has an impressive list of accomplishments in its short tenure.

To start with, the BJP has succeeded in propagating its message of hope and growth, giving rise to an aspirational populace with confident expectations of the future. In running on a platform of growth and development, the administration has effectively transposed the rhetoric away from the politics of division and towards growth and development.

A second sea change the BJP has successfully brought about is a deepening of the capital markets, particularly equities and in the coming months we expect in real estate. These asset classes form the bedrock of a rich capital market, alongside a vibrant Private Equity and FDI infrastructure, which are well positioned. We had contrast this with 2012-13, when conversations with clients revolved around FDs and fixed income.

From the AMFI data, it is interesting to note that the largest growth rates in AUM are showing up in states which are not associated with capital market flows, such as Jharkhand, Madhya Pradesh, Chhattisgarh, Assam, Uttarakhand and Bihar. The confidence of the populace is being reflected in the steady, broadening and growing contributions to SIPs.

The next key factor underpinning growth is the government’s successful focus in bringing down inflation, leading to a declining cost of capital and transmission of reduced borrowing rates to consumers and corporates. We are yet to see the benefits of this in the economy, as it takes six to nine months for rate reductions to percolate.

From an environment where India’s CAD and fiscal deficit were cited as causes for concern, India today is in one of the strongest fiscal positions of the past few decades. Macro stability and fiscal discipline have contributed to further giving investors comfort.

The government has also demonstrated its commitment to a fair and healthy real estate market. With reforms and initiatives such as Affordable Housing for All, targeting 50 million new low cost homes over the next five years, RERA, infrastructure status to affordable real estate, and the Pradhan Mantri Awas Yojana, it’s clear the government recognizes the positive multiplier effects and wealth creation of a healthy real estate market. With a 250 bps reduction in mortgage rates and a 10 percent CAGR growth in consumer incomes, the affordability gap is narrowing rapidly.

Finally, the government recognized early on that infrastructure and mobility of goods, services and consumers was critical for growth. To this end, the Sagarmala, integrated development of waterways, road, rail and air, extending aviation to smaller towns, creating frameworks for PPP, GST and a strong budget allocation to infrastructure are some of the key initiatives we would highlight.

We could focus on many additional initiatives, such as addressing NPAs, doubling farmer incomes, promoting Make in India, investments in green energy initiatives, energy deregulation, etc. The key takeaway is that, India is now amongst the most attractive investment opportunities globally and much of the credit for this rests with the BJP.

Along with demographics and a healthy consumer in place, a strong vision and leadership positioned India for sustainable growth.

Ensuring participation and benefits, however, is not a fait accompli. Competent stewardship is critical, as we repeatedly come across client portfolios that soundly underperform. The key takeaway for readers is that a competent and trusted advisor is a critical partner for wealth creation in today’s disruptive and fast moving world.

Markets backed a majority government since the beginning which they believed would drive reforms in the country. Change happens slowly at first, then quicker. Investors would do well to recognize this and position portfolios accordingly.