Uncertainty surrounding Indian elections fuels pessimism among foreign investors

In light of the ongoing national elections in India, foreign investors have taken a pessimistic stance towards Indian stocks due to uncertainty surrounding Prime Minister Narendra Modi’s party potentially winning fewer seats than originally anticipated. This is reflected in net short positions reaching their highest level since 2012, with overseas investors withdrawing approximately $4 billion from local stocks since early April. Speculation regarding a potential less decisive performance by Modi has also contributed to investor apprehension, as it could impede his ability to implement policies such as enhancing infrastructure and manufacturing. The “fear gauge,” which measures potential market fluctuations over the next 30 days, has increased significantly, further highlighting investor anxiety. However, despite these concerns, Sanford C. Bernstein strategists believe that Modi’s party is still expected to secure a third term in office, although it may not exceed the number of seats achieved in the previous election. As a result, the impact of the election outcome on Indian stocks remains uncertain, and experts suggest that investors should consider fundamental factors, such as economic growth, corporate profits, inflation, standard of living, and productivity, when making decisions moving forward. Overall, the ongoing elections in India have created a climate of uncertainty and volatility for foreign investors, particularly given the recent dip in voter turnout during the initial phases of voting.