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Waning Modi Factor On Indian Stock Markets

Waning Modi Factor On Indian Stock Markets

Even as other factors like Greece or the US rate hike take precedence, the Modi wave is losing ground on India's stock markets. 

Outlook had presented ModX, the Modi Index in February this year. The index had 15 key stocks from five different fields. Four of these — Capital Goods, Railways, Power and Tourism — were sectors Modi has repeatedly mentioned in his pre-election speeches. The fifth segment, Friend, is a qualitative one as the common perception is that the founders of these companies are 'friends' of Narendra Modi, and have been seen to be close to him over the years. Three stocks were chosen from each theme to stitch together the 15-stock ModX. 

These 15 stocks were weighted equally. That is, the attempt was to invest an equal amount of money in each of them. The index was created on January 1, 2014. 

While the ModX initially performed significantly better than the Sensex — it performed way better than the Sensex, with a return of 84 per cent in 2014, versus just 29 per cent for the Sensex—it is slowing down now as compared to the Sensex. In the first six months of 2015, the Modi Index has just about managed to perform better than the Sensex, giving a 3 per cent return versus 0.5 per cent for the Sensex according to Capital Mind, which created the ModX for Outlook.

Among the gainers from the ModX scrips were Adani Enterprises, which went through a big restructuring and a demerger; BEML with a 51per cent gain from the allocation to railways; Container Corp that went up 24 per cent, again a railways/logistics stock; and L&T with 19 per cent improvement in the infrastructure space.

Among those who performed badly are Jet Airways with a -35 per cent growth, Indian Hotels with -26 per cent and Cox and Kings with -19 per cent showing that tourism push just did not work despite lot of promises from the government. Reliance Infrastructure, too, was at -25 per cent after their story didn't exactly work.

In the broad market, we have seen foreign investors exit through May and June, reversing their investment flows which were positive for most of the previous year. Perhaps the Prime Minister needs to spend more time within the country and deliver on the promises made in various sectors when he assumed power one year ago. It will take a radical move by the government to make the sentiment favourable again.

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