Three years of NaMo Government: An investor’s point of view

The equity markets in India are buzzing with volume and turnaround of even smallest and most insignificant stocks is bringing smiles in the faces of the retail investors. Things have changed in this country in the past three years, courtesy, its Chief Executive, Narendra Modi. Keenly observing him for last 19 years, Joydeep R Ray describes the three years' long journey of Modi as the captain of a steady-sailing ship, named India. 

That was a post-monsoon morning at Gandhinagar, the state capital of Gujarat. Outside, the dark clouds were busy playing hide and seek with the blue sky. Inside, at the official residence of the then Chief Minister of Gujarat, this author was awaiting eagerly for the man in demand, Narendra Damodardas Modi, at the helm of affairs and at the peak of controversies, not only nationally but across the globe in the post-Gujarat genocide days. The world media was chasing him for an interview for the last year-and-half –he denied all such requests but his media advisor, Jagdish Thakkar himself had called this author on August 6, 2003 morning asking him to come down to the residence of Modi for the interview. I was wondering what all he wanted to speak about—I was not carrying any questions ready with me, just because I knew nothing would work till he gave me some clues about the main talking points. Then he came, we sat next to a metal idol of Lord Krishna— face to face. His candid conversations that morning scripted a history in terms of redefining the word, 'development' in the dictionary of Gujarat and later of India. 

"We will convert red tape into red carpet," he said with an absolute emphasis, making it clear that the interview would focus more on rapid development, industrialisation, rebuilding the image of Gujarat as an investor-friendly state, and his government as 'a pro-industrialisation' agency. We talked about various aspects of building a state, governance, bringing in investments, new industries, employment generation, reaching out to the world communicating Gujarat is the destination in terms of setting up of industries, of every shape, size and character. I left his highly-secured bungalow after an hour or so quite impressed.

Fourteen years later—I sit in Delhi, the national capital, to write on Modi's three years in power and how it has changed and is changing India every day—its economy, markets, industries, employment scenario, GDP numbers and all. Indeed, first he rebuilt Gujarat and now he is focussed in rebuilding the image of India before the world, mostly in terms of investments, industries and market indices. He has been running this country for over 1000 days as more of a Chief Executive Officer (CEO) than a politician who became Prime Minister. We, at DSIJ, have had this strong feeling that his identification as a politician ended on that fateful morning of August 6, 2003 when he rebranded and repositioned himself as the CEO of a state and later of the country. We will have a look, deep down, what all has happened and how all these have been helping all of us to grow.

 So if one sits down to jot down the biggest achievements or contributions to the country made by Modi-led government at the Centre during the last three years—the list may look something like this: GST, demonetisation, Jan Dhan Yojana, affordable housing, PM Ujjwala Yojana, Deen Dayal Upadhyaya Gram Jyoti Yojana and obviously, pulling Sensex up from its 25,841 level on June 1, 2014 to 30,000-plus level today. Also to add: Make In India, Digital India and introduction and smooth passage of the important Insolvency & Bankruptcy Code, 2016. 

Let us start with the stock markets in India. At the time of filing this report, Sensex stands at 30,301 and the BSE market capitalisation is pegged at over USD 2 trillion. On May 19, 2017, the Sensex hit its all-time high at 30,712.35, moving steeply from 24,121 during second half of May 2014. Dalal Street now has all the reasons to cheer and chant, ‘Modi, Modi.’ While in the last three years of Modi’s rule, Sensex went up by little above 27 per cent, investors’ wealth has gone up by Rs45 lakh crore. (See graph1) 

Most interesting part is during these three years, retail investors in the equity markets witnessed a humongous number of 234 stocks constituting the S&P BSE 500 index soaring over 100 per cent, with at least one out of two stocks from BSE500 index becoming a multi-bagger. The markets rode on positive sentiment at the index level too, the S&P BSE 500 index surged 47 per cent against a 26 per cent rise in theS&P BSE Sensex during the corresponding period. Moreover, the BSE-500 index saw a whooping 92 per cent hike in the total market capitalisation on the BSE. Of the 234 multi-bagger stocks of BSE500, Indo Count Industries, Caplin Point Laboratories, 8K Miles Software Services, Minda Industries, Can Fin Homes, ITD Cementation, TVS Srichakra, Force Motors, Aegis Logistics, Gayatri Projects and KPR Mill- about 10 stocks rallied over 1000 per cent each.

 Furthermore, about 319 stocks, constituting half of BSE500 stocks, gained more than 50 per cent, outperforming the index during the corresponding period. Since the formation of the majority NDA government, the rise in the domestic institutional assets have consequently led to a growth in MFs and the creation of a conducive environment for foreign portfolio investment. Most of the market rally in the three years’ tenure of the Modi government is attributed to the gush of liquidity brought about in the market through foreign institutional investors or FIIs and domestic mutual funds (MF), injecting over Rs3 lakh crore in Indian equities. A K Prabhakar, Head of Research, IDBI Capital Markets and Securities Limited, tells DSIJ, “The last 3 years for NDA government under the leadership of Narendra Modi has been nothing less than being transformational. Importantly, it has brought political stability, which I believe would allow government to continue to take bold steps for the betterment of the economy and its growth. This augurs well for the expectation of improvement in corporate earnings going forward. NDA government’s performance has changed the way India has been viewed both by its citizens and by the foreigners. This has been beneficial for capital markets, fund flows in domestic mutual funds have been gaining strength. Foreign fund flows through both FDI and FII have been looking positive.” For any government in power running a country, the GDP number is very important and Modi has yet again done it, clocking an impressive GDP number for his country. If we consider GDP number for the last three years during his governance, the growth has always been over 7 per cent. Let us rather rephrase it and make it simpler by saying 

that under his leadership, the country has beaten China when it comes to being the fastest growing economy. (see graph 2) Says Rahul Sinha, National Secretary of ruling BJP, “The market growth during Manmohan era is incomparable to the surge that the market is witnessing at this moment. This growth is backed by a strong and clean economy. Multiple measures rolled out by the Modi-led government in the last few days has completely changed the climate of the Indian economy. The GDP growth is unquestionable as it is fuelled by well-crafted financial strategies.” There comes the context of inflation—a burning, debatable but most important topic in our day-to-day life. During the three years of his rule, Modi has successfully brought down retail inflation from 8.33 per cent in June 2014 to 2.99 per cent during April 2017. This is something rated as one of the biggest achievements of his government. The women running household activities has a big reason to cheer Modi as during his first three years, vegetable inflation dipped to (-) 8.59 per cent from 10.72 per cent recorded just before he took over the reins of the country. (see graph 3) Interestingly, when it comes to attracting foreign investments, Modi has always remained extremely favourite for the overseas investors. Somehow they believed in him, believed in his government’s stability, be it during his long tenure as Chief Minister of Gujarat or even now, as the CEO of the country. During the last three years of the UPA government, which passed on the baton to run the country to BJP-led NDA in 2014, FDI was reported at US $ 117 billion, but during the first three years of the new government, India saw almost US $ 149 billion of FDI and we are not talking about the entire three years, but rather about 31 months of this government, as the data for the last six months is not available yet (see graph 4). Giving his take on Narendra Modi’s first three years in office, Jimeet Modi, CEO, Samco Securities, says, “This is the era where India and Indians are no longer dependent on hopes and promises, but can expect concrete results from the government. The Modi-fied India has set a benchmark of how large and small structural reforms can be brought dynamically if there is a political will and a clear development strategy to achieve the same. The Indian economy has yet to show real turnaround because of massive size and structure, reforms like GST, RERA, etc. will take time to show up the results. Since the magnitude if these changes is huge, it would take some more time in a large nation like ours to show true impact. Just like an effective treatment for a long-term illness takes long time to heal, same can be said for the changes that Indian economy and politics is going through currently. There have been many development schemes and plans for infra, social security that were laid down by many previous governments and trillions of rupees have been spent but have yielded unsatisfactory results compared with the development which the nation was capable of achieving. Modi and his government has set a minimum benchmark for administrative quality and governance that is acceptable. The digitisation drive in India has shown the world that India's will to change and adapt cannot be under-rated,” Another thing we must mention here: In the Modi regime, India’s forex reserves stand at an all-time high at USD 370 billion, as per the RBI data released in March this year. This is vis-a-vis US $ 312 billion before Modi took charge of the Prime Minister’s Office. Armed with such impressive reserves, even if tomorrow Indian rupee depreciated further, the government does not have any reason to be worried. Says Deb Mukherjee, CEO of Wisdom Capital, “For the past three years, the Modi government has reigned supreme. Even as it enters its fourth year, its economic report card is highly admirable. In 2013, the Indian economy was in a state of emergency; growth had slumped to below 6% and the rupee could not compete against the dollar.” Detailing further, Mukherjee says, “High account deficits rendered the Indian economy highly vulnerable. Back then, international investors categorized India as part of the fragile five economic groups, which included countries like Indonesia and Turkey. However, the new developments are all part of the three-year Modi government and how Indian economy turned. These welcome changes have boosted the country as a whole.” Talking to DSIJ Mukherjee adds further, “The change and development during Modi’s government prove that the country is on a much better footing than it was under its last government. Narendra Modi’s administration has certainly put forth commendable efforts that have transformed the nation.” Economists and market analysts find another reason to credit Modi for this ‘New India’. The credit goes to his government for the prudent fiscal management during the last three years. The declining trend in fiscal deficit during this period under consideration is a remarkable one as it has gone down from 4.5 per cent of GDP previously to 3.5 per cent today. “Also, we must not forget the huge step that he had taken immediately after coming to power, replacing Planning Commission by the NITI Aayog, which ended the era of planning as Modi signalled a new of model of Centre-state relationship. The thought itself was much appreciated by various states, even by the heads of the states where BJP was not in power. His capacity of taking people from different political ideologies is being appreciated even in global platforms,” said a senior bureaucrat in the Central government, requesting anonymity. Modi’s political foes, even in the Opposition bench, even somewhat acknowledges his government’s certain positive steps. Says Sanjay Nirupam, Senior Congress leader, “The only good things the current government is doing are the implementation of GST and Aadhar card enabled systems which were original reforms initiated by us and were vehemently opposed by BJP. “ “Modi hit the ground running and has hosted changes both in the policy level and government department functions. Programmes like Make in India and Direct Benefit Transfer have aided a positive shift in the financial sector. They have made it possible for technology to reach individuals who want to make transactions but are not registered with any bank. There has also been a change in the way government offices function. All ministries work in the best interest of the people. The country enjoys the easing of labour laws and simplification of goods and service laws, among other benefits. The government is finally aligned to the current needs of the country, with inflation being over half of what it was in past years,” Mukherjee of Wisdom Capital sums up. “Coming to the initiatives, the government was able to transform initiatives to change harbingers through action. The two initiatives that I would highlight are Make in India and Housing for all. Talking about the much hyped Make in India initiative, while the success of the initiative is disputable as it is still under process, the initiative did spread the awareness and stir a wave of nationalism, among Indians in India and abroad, to improve the domestic economy of the nation. Even, the housing for all initiative gained its momentum through various budgetary provisions as well as through RERA Act. Thus, I would say, the government was very efficient in transforming initiatives into social reforms,” says Arun Gopalan. Vice President- Research & Investments, Systematix Shares. governments, it is going to bring the maximum gains to the centre and the nation. The economy may face problems of growing inflation and implementation initially but as tried and tested in other countries, GST will fare well in long term,” adds Gopalan. Fourteen years since we talked about rolling red carpet and cutting red-tapism, few weeks back I had gone back to both the corridors of power in the national capital, Delhi, and the capital of Gujarat, Gandhinagar—I did not see red-tape anywhere. I could sense a change in the way government agencies are running, I could feel the wave of changes everywhere starting from North Block, South Block, Shashtri Bhavan to Sachivalaya and Udyog Bhavan in Gandhinagar. Things look much more positive now than few years back—there may be certain things below the carpet and some numbers which may not be that impressive, but then, he has got just three years so far to run the largest democracy of the world and the fastest growing economy on the planet. We can always come back to this space once a year to find the points of debate between truth and hype. You can also stay tuned and get to know your government and your country’s CEO better. This summer afternoon, I start walking back from near Rashtrapati Bhavan, exactly where this huge board announcing presence of the Prime Minister’s Office exists. As the sun sets over the Raisina Hills, I overhear two SPG men talking, “we have a Rahul Dravid to lead the country, not a Sachin or Kohli. Finally, we have someone who can prove how being consistent pays. Look at the Sensex graph—we still have time to invest in it.” I smile, start walking further in the national capital—far from the official residence of Gujarat Chief Minister in Gandhinagar, where I had started the walk 14 years back on an August noon. Modi’s walk too, towards building a new India, continues.