How stock market fared in Narendra Modi’s five years

As the final Budget of Narendra Modi-led NDA rule draws to a close, it is clear that the stock market has not really had it easy in this rule. The Modi budgets have not had any outstanding takeaways for investors; they have instead imposed tax on long-term capital gains on stocks and equity mutual funds and tweaked the LTCG tax on debt funds unfavourably as well.

The performance of bellwether indices have been sub-par under Modi, compared to the performance in UPA I and UPA II regimes. The Nifty 50 index has gained around 45 per cent since May 26, 2014, when Narendra Modi was sworn in as the Prime Minister. In contrast, the Nifty 50 gained 172 per cent under UPA I and 74 per cent under UPA II.

Similar trend is apparent in mid- and small-cap indices as well. The Nifty Midcap 100 index has gained only 54 per cent in the last five years, compared to gains of 147 and 114 per cent, respectively, under the first and second Manmohan Singh governments. The Nifty Smallcap 100 has fared even worse, gaining just 21 per cent under the Modi government, compared to the whopping 212 per cent under the first UPA rule and 98 per cent under the second UPA rule.

Reasons for underperformance

It is obvious that the correction witnessed in 2018 has greatly marred the track record of the Modi government. While a combination of factors including steep valuation, governance problems and SEBI’s new rules for recategorisation of funds caused a sell-off in the early part of 2018, these stocks were further hit in the NBFC crisis following the IL&FS crisis.

The tepid performance of the large-caps was also due to FPI selling and profit-booking witnessed in 2017. Another factor that depressed the comparable performance of stocks under the Modi rule was the conducive structural uptrend in global economy in the UPA I rule and the recovery from the sub-prime crisis in 2009 fuelled by expansionary monetary policies of global central banks between 2009 and 2014.

Consumption has been the dominant theme in the last five years as the Sixth Pay Commission, the increasing rural spends and the faster growth in services sector compared with others boosted consumer-oriented sectors. It is, therefore, not surprising that some of the top-performing stocks belong to these sectors. Bajaj Finserv (up 1,214 per cent), Hindustan Unilever (up 214 per cent) and Titan (up 206.5 per cent) were the top three performers in the Nifty over the last five years.

BSE Consumer Durables index was the top gainer between May 26, 2014, and now, gaining over 150 per cent. FMCG companies have also been able to make the most of this trend of the consumers willing to spend on consumables, with the FMCG index gaining 73 per cent in this period. Auto stocks too had a heady run until 2017, but the correction in 2018 wiped off most of those gains.

Infra failure

The poor performance of the Nifty Infrastructure index, down 6 per cent in the last five years, marks the major failure of the Modi government. These stocks had rallied smartly in 2013 and 2014 on the expectation that the government will speed up reforms and put the country on the fast track. But as the challenges facing this sector appeared too big to surmount, the infra stocks too lost their mojo.

It is apparent that corporate earnings have not kept pace with stock price increase, for Sensex’ trailing 12-month price earning (PE) multiple has increased from 18.2, when Modi was sworn in as the Prime Minister to 23.9 now.

Sectoral indices that sport PEs of more than 35 include FMCG, consumer durables and banking index.