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India election update

Synopsis:

  • Foreign Institutional Investors: Foreign portfolio investors have been selling Indian stocks and bonds, with April seeing outflows as elections started, contributing to a dip in foreign reserves by over USD 2.4 billion from a record high in March. This was influenced by high equity valuations and U.S. Treasury yield spikes, along with the rupee hitting a record low and tax treaty revisions with Mauritius affecting investment incentives.

  • Stock Market: Despite global and local economic pressures, including geopolitical tensions from the Iran-Israel conflict, India’s stock market rose by 2% in April and 8.4% in the first four months of the year, buoyed by strong inflows into dedicated India funds, although foreign investor holdings are at a decade low.
  • Growing significance of PE & VC: The private equity and startup ecosystem in India is seeing a revival with USD 3.2 billion invested in Q1 across 354 deals, driven by sectors like fintech, AI, healthtech, and agritech. This follows a slump in startup funding in previous years but shows promising “dry powder” capital ready for deployment.
  • Heatwave & Inflation: Rising inflation, exacerbated by a severe heatwave damaging crops and pushing food prices up, is likely to restrain the Reserve Bank of India from cutting interest rates despite the economy showing robust growth forecasts from various agencies, projecting expansion between 6.5% and 7.5% this fiscal year.
  • Election enters phase 4: The ongoing elections have been marked by divisive rhetoric, particularly from Prime Minister Modi, amid a challenging climate characterized by high temperatures and expected political continuity, which has somewhat dampened voter turnout compared to the last election cycle. However, our AI local media sentiment still shows Modi with a significant lead.

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