India’s macros were inverse of China for decades, Modi’s reforms changed that: Jefferies’ Chris Wood

Chris Wood said India has seen a fundamental structural reform in the two five-year terms of Prime Minister Narendra Modi’s government

Fundamental structural reforms have changed India’s macroeconomic factors, which were earlier not appealing for foreign investors, said Chris Wood of Jefferies. India's macros are as good as any other country now, said Chris Woods in his popular Greed & Fear note. This was not the situation 21 years back when only Indian micros appealed to investors, he added.

Picking a statement from a 21 year-old note, Chris Wood said, “The bottom-up appeal of India has always been severely diluted by the lack of a compelling top-down story. In a sense the country has been the inverse of China, the ultimate macro story but without the compelling micro options.”

However, now India has seen a fundamental structural reform in the two five-year terms of Prime Minister Narendra Modi’s government. These reforms helped India realise full potential in taking advantage of its intellectual capital, physical capital, and positive demographics.

He stated three of the achievements of the Modi government.

The first one was a massive government-funded investment in infrastructure. This was a game changer for improving the overall logistical efficiencies of the economy, said Wood.

The second one was passing the Insolvency and Bankruptcy Act 2016. After this Indian promoters knew they were at a risk of losing their assets if they defaulted loans.

The third one was introducing RERA (Real Estate Regulation and Development Act of 2016). The property market was in a downturn for seven years and now it is in an upturn for the last three years and delivering its full potential, giving multiplier effects for the economy, he added.

Indian stock market driven by domestic investors

The top-down story in India is strong, but the bottom-up story remains dynamic, with a flourishing start-up scene and a booming local asset management industry, said Woods. This means that the stock market is now primarily driven by domestic flows which was not the case 21 years back. He noted how little foreign investors are invested in India right now.

Wood said that the increased profile of India on the global stage also reflects the marketing skills of Prime Minister Narendra Modi. This was also reflected in the widely acknowledged success of the G20 Summit held in Delhi last September. “In a world of rising geo-political tensions, India has deftly managed to maintain a foot in both camps, remaining on good terms with the Washington-dominated G7, while also being a fully signed up member of BRICS.”