India ETFs Will React To Election

India ETFs Will React To Election

India is in the midst of the largest and most expensive election in history. Here’s what it means for India ETFs.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

Gaurav SinhaGaurav Sinha is an asset allocation strategist at WisdomTree, an ETF issuer with nearly $40 billion in assets under management. He writes frequently about emerging markets, and India in particular. recently spoke with him about the ongoing elections in that country—what Sinha calls the largest and most expensive democratic exercise in the world—and what they mean for India stocks and ETFs. India is in the midst of countrywide elections. Would you fill us in with what’s going on?

Gaurav Sinha: Not many people realize how complicated elections in India are and how sophisticated the planning for the election is. The whole process runs over multiple weeks. It started on April 11 and will go until May 19. And then the results will be counted on May 23.

The constitution of India mandates that all citizens have to be less than approximately 1 1/2 miles from a polling booth. That means there are polling stations 15,000 feet above sea level in the mountains of the Himalayas and there are polling stations in lush, green tropical forests with tigers and leopards.

It's the biggest democratic exercise anywhere on the planet. It's also the most expensive one, estimated to cost $7 billion. For perspective, the last U.S. presidential elections costed $6.5 billion, which was at the time the most expensive ever.

These elections are a high stakes game for Prime Minister Modi, who, even after all the criticisms from the market liberals, continues to be the darling of the investment community in India and elsewhere.

Most likely, Modi will stay in power, whether it be with a clean mandate or with some sort of a coalition of like-minded parties. How important are these elections for India?

Sinha: From an investment perspective, what matters for any country—especially in the medium to long term—is the history of reforms and the trajectory of economic and monetary policy, not who’s governing. 

Either way this election goes, there’s no fundamental change in the opinion on India from a medium-term perspective.

Not many people realize India’s economy is almost the size of the United Kingdom’s. It's bigger than France, Brazil, Italy and all of these other traditional economic powerhouses. It’s by no means a small economy at $2.5 trillion.

There are 1.2 billion people in India, similar to the population of China, and the economy is growing at a 7-7.5% rate for the foreseeable future. That makes it a great investment opportunity for the medium term.

The democratic setup of the country ensures that no matter who comes to power, it's extraordinarily difficult to change the fundamental structures of the economy.

Even with the clean mandate that Modi had five years ago, when he won in 2014—the first clean mandate in 30 years of election history in India—he still had a tough time implementing some of the reforms.

He managed to implement a lot of it, but a lot of it still needs to be done. It wasn't a cakewalk for him. What it means is that, tomorrow, if there’s somebody else in power, similar checks and balances of the democratic structure would make it so it's not easy for them to reverse all the good things that he’s done. Fundamentally, India will continue to be on the same track. How do you see India’s markets reacting in the short term to Modi winning or losing?

Sinha: I put a 70% probability on Modi winning. Depending on how clean a majority he gets, markets would rally a lot. Even if Modi and the BJP [Bharatiya Janata Party] fail to get a clean mandate, markets could still stay positive.

On the other hand, if they don't form a government—which I see as a smaller 30% chance—there’ll be a sell-off in the short term.

But even if there’s a sell-off, it creates good entry points for people who are in the market for the medium term. Unless you’re timing markets, I’d recommend investors dollar-cost into Indian equities because we don't know which way the elections will go and what will happen. Most India ETFs are up over the last five years, underperforming U.S. equity ETFs but outperforming broader emerging market ETFs. Is that performance surprising to you?

Sinha: Emerging markets as an asset class has lagged U.S. equities; for that matter, everything has lagged U.S. equities. The U.S. has been the economic engine of the world since after the financial crisis.

But that doesn't mean that will be the case forever. In fact, there's always a mean reversion.

We are bullish on emerging markets as an asset class, but there are select sectors within EM which are more attractive than others. I’m bullish on consumer sectors and information technology, rather than traditional defensive sectors like energy and banks, which are heavily owned by governments across EM.

If you really want to benefit from emerging markets, don’t be a tourist. The allocation can go bad. You have to base yourself in emerging markets for the medium term, and that's when you realize the upside potential these markets can have. How do valuations for India’s equities look right now compared to history?

Sinha: Relative to its own history, it's definitely a bit cheaper—especially mid and small cap equities, because that portion of market has been hammered more than the large-cap equities.

If Modi stays in power—and there is a high likelihood he will—medium and small cap equities will skyrocket. Those companies are more tied to the local economy, and they don’t export much. For investors who are willing to take a little more risk, that’s a good area to focus on.

Email Sumit Roy at [email protected] or follow him on Twitter sumitroy2

Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.