Modi Victory Won't Restart Investment Cycle: Credit Suisse

Image: Babu Babu / Reuters

Narendra Modi supporters wear Modi masks during a rally in Chennai

With Better earnings revisions and growth than most other emerging markets, India looks relatively more attractive as an investment destination, says a report from Credit Suisse analysts Neelkanth Mishra and Ravi Shankar. But the two warn that hopes among investors that the upcoming elections can restart the investment cycle is “misplaced”.

Many believe the “Modi euphoria” is behind the recent bull run of the Sensex, raising expectations of economic growth if the upcoming elections throw up a decisive mandate. But Mishra and Shankar say: “Even if the electoral verdict is favourable, such misplaced optimism ignores the realities of the business cycle, and overestimates the powers of the Central government. Only a fourth of the investment projects under implementation are stuck with the Central government; the rest are constrained by overcapacity, balance sheets, or state governments.”

Two-thirds of the stuck projects are in power and steel sectors, which are anyway struggling with overcapacity. The two, though, note that if the election outcome goes according to present opinion polls—the most positive of which predict the BJP getting more than 220 seats—it “would fuel a continuation of the rally in cyclicals”. But the analysts themselves are not confident either about the opinion polls or of the “positive” prediction.