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As many as 900 million voting-age Indians are expected to head to the polls this April. They will elect 543 members to the “Lok Sabha”, who are responsible for forming the government and appointing the Prime Minister (PM), thereby steering the political and economic course for the world’s second largest country by population.

Key points

  • In what will be the largest democratic exercise in history, as many as 900 million Indian voters could turn to the polls this April to elect a new government, steering the political and economic course of the world’s second largest country by population. Polls show the pro-reform ruling Bharatiya Janata Partry (BJP) crawling back after showing resolve in the recent standoff with Pakistan.
  • India’s economic picture is steady but mixed: Inflation is relatively low and the currency is stable, but GDP growth has slowed and the current account deficit is rising.
  • After a weak start to the year, Indian equities have rallied as the BJP advanced in the polls, outperforming broad emerging market stocks. However, Indian exchange trade products (ETPs) flows have shed $162 million in the last three months.1
  • A victory by the incumbent BJP party could potentially bolster market sentiment based on policy continuity. We view an opposition victory as an underappreciated market risk.

Election overview

The election will occur in seven stages from April 11th to May 19th and the results will be announced on May 23rd. To form a majority, a party or coalition of parties must win 272 seats. Currently, the BJP-led alliance, the National Democratic Alliance (NDA), holds 302 seats.

The election represents a potential crossroads for India’s reform agenda. The ruling BJP led by PM Narenda Modi has overseen robust growth over the last four years. It has instituted several market friendly reforms, including the simplification of India’s complex tax code, improvement of the Reserve Bank of India (RBI)’s ability to deal with non-performing assets, and the liberalization of foreign direct investment.

Still, 2018 was a challenging year for the NDA. Critics pointed to broken 2014 campaign promises, high unemployment, relatively low growth, increased violence against minority groups, and demonetization as sources of discontent with the ruling regime. This aided the United Progress Alliance (UPA), led by Rahul Gandhi, throughout 2018.

However, PM Modi’s NDA coalition recently rebounded in the polls after February’s military confrontation between India and Pakistan in the disputed Kashmir region (figure 1). His tough response to a terrorist attack by a Pakistan-based group won PM Modi praise from the Indian public, all of which could continue to influence the sentiment of the Indian electorate going forward.

Figure 1: Support for Modi’s NDA grew in 2019

Opinion polls for Indian general elections 2019

Source: Times India, ABP News-C Voter, India TB-CNX, as of 3/19/19.
Notes: Average polls are calculated by taking the Dec – Jan polls and March polls from Times India, ABP News-C, and India TB-CNX.

Economic backdrop

India’s economy remains steady heading into the elections. The country’s GDP has slipped, but still grew at 6.5% in 2018, roughly in-line with recent years (figure 2), while recent manufacturing data indicates expansion. Meanwhile, the Nifty 50 Index corporate earnings growth was 11% YoY last quarter.2 Earnings expectations for this year are about 24% YoY per IBES estimates.3

Monetary policy may also be supportive going forward. Inflation is below the Reserve Bank of India (RBI)’s target rate, which could give them room to ease policy.

However, further deterioration of the country’s balance of payments is a risk. Though foreign direct investment remains positive, a deepening current account deficit may put pressure on the balance. The country’s declining savings rate may also weigh on the deficit going forward. Concerns over the RBI’s independence amid political pressure is another risk.

Figure 2: Macro suggests stable growth but persistent current account deficit

Macro suggests stable growth but persistent current account deficit

Source: Thomson Reuters Datastream, BlackRock U.S. ETF Investment Strategy. Apr 05, 2019

Investor positioning

Indian assets experienced a pre-election rally so far in 2019 (figure 3): The MSCI India Index is up 12% from February lows, 10% stronger than the MSCI EM Index over the same timeframe.4 Within Indian equities, the domestically focused small-cap component outperformed. India’s rupee and interest rates have also rallied.

Note this performance comes amid the NDA’s rise in the polls. This may suggest investors are comfortable with the incumbent party’s reform trajectory.

Figure 3: Indian equities outperformed broader EM Feb – March

Indian equities outperformed broader EM Feb – March

Source: Thomson Reuters, as of 4/04/19. Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index performance does not represent actual iShares Fund performance. For actual fund performance, please visit or

Interestingly, India specific Exchanged Traded Products (ETPs) flows remain tepid (figure 4). Flows into the region number -$162 million in 2019, which is 3% of U.S. listed India ETP assets under management (AUM).5 In contrast, net foreign equity investment into India numbers $7 billion year-to-date and flows into broader emerging market ETPs and mutual funds currently number $15.5 billion year-to-date.6

Figure 4: U.S. listed India focused ETP flows do not reflect the change in risk appetite apparent in secondary market

U.S. listed India focused ETP flows do not reflect the change in risk appetite apparent in secondary market

Source: Bloomberg, as of 3/20/29.


Indian equity market valuations appear elevated after the recent rally. The MSCI India Index is trading at 18.4 times forward earnings – the highest out of individual MSCI country indexes. It is also trading at 1.06 times its 5yr average price to 12m forward earnings.

Figure 5: Indian equity valuations are richly valued on an absolute and relative basis

Indian equity valuations are richly valued on an absolute and relative basis

Source: Thomson Reuters, IBES, as of 3/27/2019. 12 month forward earnings are an estimate of a company’s earnings over the next year. Countries represented by the respective MSCI country indexes.

Our view

The upcoming election could determine the success of India’s reform. The continuation of PM Modi’s government would diminish uncertainty around the direction of reforms, which is likely to support investor sentiment. Economic dissatisfaction and unfulfilled 2014 campaign promises by the BJP party might make an opposition victory an underappreciated market risk.

Recent tensions with Pakistan and PM Modi’s response supported his electoral prospects, based on an uptick in polls, but we do not see further escalation on the subcontinent as likely. The BlackRock geopolitical risk dashboard indicates that geopolitical risk in South Asia is elevated, but a lesser concern than other global risks. But for that reason, any further flare-ups between India and Pakistan could have a greater impact on markets.

Christopher Dhanraj
Head of iShares Investment Strategy
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