Four years on: Modi lays down building blocks for growth in India

Four years after Narendra Modi became Prime Minister of India, there are good reasons to be optimistic about his reform programme and the impact it may have on economic growth in the medium term. We have identified six key areas of significant positive change.

Aug 8, 2018 | Stuart Parks and Paula Niall

An important theme within Asia is the progress of reform in India. Under Prime Minister Narendra Modi, India has the best reform momentum amongst the Asian countries we invest in. Several structural reforms have already been undertaken: the implementation of the Goods & Services Tax (GST) is progressing well, the high-value currency demonetization is shrinking the black market, the approval of the Insolvency & Bankruptcy Code has been a significant step towards cleaning up bank’s balance sheets, the state-owned banks’ recapitalization should enable the stronger banks to grow their loan books more aggressively, the affordable housing buildout is likely to help revive growth and, finally, the digital transformation is reducing costs and increasing efficiency. Ultimately, investors have remained confident that Modi’s reforms will increase the economy’s potential growth rate and therefore support higher corporate earnings in the longer term. We concur with this view. But if these reforms do not actually produce improved growth in 2018, then investors may start to question whether the valuation premium attached to Indian companies is deserved.

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