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Last Updated : Apr 29, 2019 09:22 PM IST | Source:

PM Modi is like Margaret Thatcher, would need 10 years to change India: Chris Wood

Wood remains firmly of the view that Modi has undertaken a number of structural reforms which, like all such reforms, are painful for vested interests

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As we inch closer to the election results day (May 23), the Street is taking Narendra Modi-led Bharatiya Janata Party's (BJP) win but with a reduced majority as the base case scenario, said CLSA's Chief Strategist Christopher Wood in his weekly note 'GREED and fear'.

If we look closely, PM Modi's narrative has changed from focus on economic development (which was the case in 2014) to a more nationalist stance in 2019 which according to ‘GREED & fear' can be categorised as smart politics even if it might also be viewed as cynical.

The assertive stance he took on the Pakistan issue will act as a key tailwind for PM Modi in 2019.


Historically, the most appropriate comparison is Margaret Thatcher who, towards the end of her first term, looked far from sure of being re-elected because of the unpopularity of her tough macro policies which were characterised by left-wing opponents as "the cuts".

"The analogy is appropriate since Modi, like Mrs. Thatcher, is committed to structural reforms and indeed has an agenda to change India. To deliver on such hopes, in GREED & fear's view, a minimum of 10 years in power is required," Wood said in the report.

Wood remains firmly of the view that Modi has undertaken a number of structural reforms which, like all such reforms, are painful for vested interests.

This pain has been further exacerbated by the blow up in the non-bank financial sector since the IL&FS default late last August, the fallout from which continues, said the report.

NBFC loan growth has slowed from 23 percent on a YoY basis and 5 percent on a QoQ basis in 2QFY19 (July -September 2018) to 18 percent YoY and 1 percent QoQ in 3QFY19.

The IL&FS default has triggered an abrupt halt to the NBFC boom before the regulatory arbitrage allowed for still greater excesses. “That said, it has been a further blow for an economy already hit by the twin shocks of demonetisation implemented in November 2016 and GST implemented in July 2017,” said the report.

Crude oil:

Indian market touched record high in April but faced selling pressure at higher levels largely on concerns of a rise in crude oil prices as well as weakness in the rupee. The index is up about 10 percent from February lows.

“Investors in India remain as obsessed as ever with the oil price. This is for good reason given the longstanding negative correlation between the oil price and the Indian stock market. The correlation between the Nifty Index and Brent crude has been negative 0.70 percent since 2011,” said the report.

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According to the report, Donald Trump will back off. "The oil price is just as likely to spike to a three-figure level if America really implements this threatened policy, just as was also the case six months ago," said Wood.

"It is also the case that it makes no sense to pick a row with China on buying Iranian oil, and there will be a row if the waivers are not renewed, at the same time as the Donald is hoping to secure a trade deal, and a “win” with Beijing. It is also the case that Saudi Arabia will be less willing to pump extra oil, in response to Trump bullying, that was the case six months ago," he said.

Still, whatever happens on the Iran issue, Wood remains bullish on oil based on rising demand in Asia and emerging markets combined with the lack of a supply response from the conventional oil industry in this cycle as a result of the alternative energy hype.

In an Asian or, even better, emerging market portfolio, that risk is best hedged by owning oil stocks. In this respect, any decision by Trump to back off his aggressive stance on Iran should be viewed as an opportunity to add to oil play, added the note.

Meanwhile, the report says that rupee is not one of its favourite emerging market currencies, even if the Indian stock market is.

"Rupee is certainly not yet cheap on a real effective exchange rate basis while renewed monetary easing under the new RBI leadership means the currency is less protected by high real rates than used to be the case," added Woods.

(Disclaimer: The views and investment tips expressed by investment experts on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions)

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First Published on Apr 29, 2019 01:58 pm
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