India ETFs Drop on Modi Vote; Mexico Rallies 2nd Day
India ETFs tumbled on Tuesday after election results showed that the incumbent Bharatiya Janata Party failed to secure enough seats to retain its parliamentary majority outright.
The news dealt a blow to Prime Minister Narendra Modi, who is seeking a third term as head of the world’s most populous country.
Votes were still being counted shortly after noon on the U.S. East Coast. Bloomberg’s India election tracker showed that BJP was on track to win 240 seats out of the 543 seats in the lower house of parliament, well below the 350 seats it won in 2019. A majority requires 272 seats, so Modi will need the help of other parties to remain prime minister.
As of midday Tuesday, the iShares MSCI India ETF (INDA), the largest India ETF with $10.2 billion in assets under management, was trading down by 6.5%.
The $3.3 billion WisdomTree India Earnings Fund (EPI) and the $1.1 billion Franklin FTSE India ETF (FLIN), the next two largest India ETFs, were lower by 7.9% and 6.8%, respectively.
Tuesday is on track to be the worst session for Indian stocks since the pandemic-driven sell-off in 2020.
Investors fear that without an outright majority, Modi will have to rely on other parties to remain in power, reducing his ability to enact business-friendly policies.
Shilan Shah, deputy chief emerging markets economist at Capital Economics, wrote that a weaker Modi will “make the passage of contentious economic reforms more difficult.”
Indian stocks are some of the most expensive in the world, reflecting the country’s strong growth prospects and demographics.
Stocks in the MSCI India Index, the index tracked by INDA, are trading at 23 times expected forward earnings, above the 10-year average of 19 times.
Not all observers were similarly downbeat. Capital Economics’ Shah believes that with the help of allied parties, Modi will “still be able to work as the head of a stable coalition,” and that the new government “could still do enough to keep potential growth at 6-7%.”
“That would leave the economy on course to more than double in size over the next decade,” he said.
Mexico: Elections, ETFs
It's been a busy week for emerging markets election news. On Sunday, Mexico's voters in a landslide elected Claudia Sheinbaum, head of the left wing Morena party, to be the next president. She'll be the first woman to lead the country.
While the result was expected, and Sheinbaum is a member of the preceding president's party, her victory sparked concern among investors that she'll enact policies detrimental to Mexico's markets.
"The question is whether the Morena party has done so well that it could command a super-majority and try to pursue market non-friendly policies of constitutional reform," Chris Turner, global head of markets at ING, told Reuters.
The iShares MSCI Mexico ETF (EWW) regained some ground after dropping 11% yesterday, adding 2.6% Tuesday.