Indian voters’ tepid endorsement of Prime Minister Narendra Modi leaves a weakened mandate for business-friendly reforms and has foreign money managers thinking twice about unleashing another wave of investment in the world’s fastest-growing economy.
With the party losing most ground in rural areas, investors say land and labor reforms, that had been expected to unlock value and growth, will probably fall by the wayside while leaders focus on shoring up rural support which had faltered. Bonds weakened as traders priced risks that welfare spending goes up and budget consolidation is delayed. The tightly-managed rupee skidded to a seven-week low.
To be sure, investors say the election outcome - with Modi’s alliance winning 293 of 543 lower-house seats - is unlikely to derail this trajectory, nor is India’s broadly stable currency and attractive debt market likely to be unduly ruffled. M&G’s Pershad, for instance, who is positive on the market, was on Tuesday a modest seller of defense stocks and a buyer in healthcare. Analysts at CLSA turned defensive, dumping infrastructure conglomerate Larsen & Toubro from their focus portfolio in favor of IT outsourcing firm HCL Tech .
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