As India gears up for the general election in April-May 2019, some risk-off sentiment seen towards Indian equities might have spooked some investors. But for Franklin Templeton, the country’s solid fundamentals continue to present a positive story for investors.

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Sukumar Rajah, senior managing director and director of portfolio management, Franklin Templeton, believes that even if there is a surprise election result, the impact from uncertainty would be felt only in the short-term because fundamentals remain intact and it’s unlikely that investors will see any major changes made to legislation irrespective of whoever forms the new government.

"In the longer run, the case for investing in India remains strong as fundamentals appear solid and long-term growth drivers give us reason to look at India in a positive light," Rajah said, in a report dated March 17, 2019.

According to the brokerage, if Narendra Modi is re-elected, India’s economic path will not see any material changes and even if Modi doesn’t win outright, it’s likely that Bharatiya Janata Party (BJP) will still form the new government, possibly as part of a coalition.

"Whatever the outcome of the election, there is little scope for any new government to implement radical, populist policies, due to the set up between the government and its dependency on the Reserve Bank of India to balance its budget deficit," the report said.

With elections just a month away, the political parties have made a number of manifesto promises including farm loan waivers, subsidies, minimum income guarantee among others. A number of these measures could have significant fiscal implications for India’s economy and have raised eyebrows among many investors.

But according to Rajah, India’s growth path, underpinned by policies put in place since 2014 by Prime Minister Narendra Modi, is well-enough established to withstand any challenges.

"These policies, including the introduction of the GST, a revamped bankruptcy code, bank recapitalisation and increasing foreign direct investment limits across sectors, as well as the Make in India initiative, have helped India become the fastest-growing major emerging-market economy in 2018, at 7.3% GDP growth," he said in the report.

"Projected gross domestic product growth for 2019 remains relatively robust at 7.5 percent and is estimated at 7.7 percent in 2020. By comparison, China’s economy is forecast to grow at a slower rate of 6.2 percent this year and in 2020," forecasts the report.

The investment management company maintains that India is at a turning point for earnings growth. "The last few years for earnings growth have been challenging, due to the effects of demonetisation, implementation of GST and the impact of negative headlines from non-performing loans. We think it’s likely we’ll see a gradual improvement in earnings growth, which would be supportive for equities," it added.

First Published:Mar 18, 2019 12:30 PM IST