Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.
Let's get to tanvi Madon, Senior Fellow on Foreign Policy at the Brookings Institution, to talk a little bit more about the India elections. Tonvie, thank you for joining us.
Now.
You see comments like even if Mody remains Prime Minister, his position will be much diminished. He won't be the same MODI it puts the eight percent growth target at risk. But I want to flip the argument a little bit and put this to you. Might this not be a good thing in that it shows democracies working in India and even smart strongmen need a check on their power.
I think the word you're hearing a lot from analysts but also from voters is balanced. That the Indian voter has voted for more balance, and as you said, that's not necessarily a bad thing. You could see an argument made that Prime Minister Mode will continue some reforms, for example on the economic side, but he will need to
think about how to ensure more inclusive growth. The message from voters seems to be that India is shining for some, but not for many, and so I think you will see it doesn't mean that you won't see the same direction, but I think there will have to be some tweaks and adaptations. But as you said, I don't think this is necessarily a bad thing. It shows that at the end of the day, the ultimate guarant of Indian democracy are Indian voters and they want choice and the exercise choice.
So let's drill down into that if we can. How pervasive is inequality, joblessness and inflation when it comes to the cost of living.
I think it depends from state to state, and one of the things that analysts will do in the next few days is drilled down in each state and see
what the signal has been. One thing we've heard even in the state elections in the studden southern state of Karnataka a few months ago where Bangalore, is that what rural voters in particular, we're feeling economic distress, We're upset about inflation and prices, and we're pleased actually by Prime Minister Modi's welfare schemes cash transfers, but they also want jobs and so I think that's where you will see some of the focus as Prime Minister Modi tries to
not just form a coalition but think about what the policy priorities are going to be in the months ahead.
So those thirty seats that are controlled by the allies, the small parties, we did have the Telugu Dessaum Party in under Pradesh saying that they will that they are are, you know, reaffirming their support for Modi. Is it possible that not really all that much changes because the coalition will still be in power and Modi will still be the man.
I think where you will see change is from the fact that Primal Simodi is somebody who has never had to deal with a coalition government. He was a Chief minister, the equivalent of governor of the state of Gujrat for a number of years. He's been Prime Minister for ten years, but he's always had a majority. So there will have to be some change, even though it's only about thirty forty seats that they need partners for they'll be changed from the fact that Primal Simodi now has to deal
with coalition partners. I think the second thing that we will will see over the next few months is what this means for the party internally. What is their assessment of why they have lost? And I think there will
have to be some adaptation. And if there is not, if Prime Minister Modi and his party do not adapt and send a signalative voters that actually they're not acknowledging that the voters have sent a different message from twenty nineteen twenty fourteen, they will perhaps suffer greater defeats in future, not just national elections but state elections as well. So I do think there will be some adaptation that's necessary.
I'm curious about what this may mean for foreign policy, particularly with India's relationship with Russia, whether we're talking about support for the conflict in Ukraine or the importation of a Russian crude oil into India. Does it change the calculus on foreign policy at all?
Not really. I think foreign policy is one place that even though you see their ruling party often say that everything has changed with Madi, whether it is actually more continuity rather than change. Sometimes this emphasis that differs for example on the diaspora or on cultural issues, but largely whether it's the traditional partnership with Russia that remains but has been both this government, the Modi government and previous governments have been diversifying away from it to some extent.
You'll see that continue. You'll see at the end of the day, a recognition that even job creation needs foreign investment and that's been coming mostly from the West writ large, or from the Middle East. And I think so you'll see I think more con consistency, then change, maybe a change in pace, but not change in direction and foreign.
Policy Tanvi domestically, how much does this strengthen the hand of Rol Gandhi.
I think this will definitely change his image in India. He was seen as somebody who you know, could not pull off a victory for the Congress Party. And technically he's not the leader. There's another leader of the Congress Party, but he was seen as the face of it. And so I think it will in the voter's mind, but also a narrative, and I think that's huge can be
hugely important in Indian politics. In the narrative, the kind of image that the BJP has tried to portray him as a loser of sorts, you know, has nothing, hasn't been able to kind of pull off victories. I think that will change a bit. I think the Indian voters have shown that they're actually not that willing to dismiss him as the BGB perhaps would like.
Tommy, thank you so much for joining us. Tom V. Madon, Senior Fellow on Foreign Policy at the Brookings Institution.
We go to Indian next, where Prime Minister nurenber Modi has avowed to continue in his role even though his party did lose a majority in parliament. Let's bring in Hustlin to Amen. Bloomberg's the chief international correspondent for Southeast Asia. She is in Delhi and she joins us. Now hawas it's always a pleasure. I'm curious. It feels like we've witnessed what some are describing as a political earthquake. Can you give us a sense of what you saw as these election results came in.
Wow, it's such a stunning blow to Modi. I mean, when we were tracking the vote ground and you know, initially it stopped with oh, it's going to be a landslide victory for Modi. Then he went to like, oh, it's getting really really close. You know, in the end, this is the largest democracy and they're voted against the status go they want change. You know, we talk about
how India is a rich country. We talked about India, how it's growed at eight percent the fosses growing economy among the G twenty, but that wealth has not been equal and the people voted against that. It's been a blow. You talk about political usquake, this is how it landed. Really. Modi's VJP parties secured two hundred and forty one seat. What in needed for a majority was two hundred and seventy two. Essentially, what it needs to do now is to get those votes from its allies. The problem is
the leaders of the two allies are flip swapping. They've been flip swapping for the last couple of months. In fact, they joined the alliance only several months ago. So he remains to be seen if Modi can get them on its side.
In our stories though, we are saying that a spokesperson for the allies basically affirming support for the coalition. But it does give them some power, so it kind of raises the questions if Mody is a I wouldn't say a loser, but I mean he's definitely in that category of not achieving quite what he'd hoped. Who has achieved a lot more and how much power does it give them?
Well los to say it is a weekend Modi Mody was seen for a very long time as the strong man, unbeatable I mean cint he king to power, which was a surprise. Ten years ago his bill his power near a year afia no one expected to see a week in Modi. He talked about what's staying in power to twenty forty evans. That is when he targets in it to be a middle income country right now, if you're talking about a torments alternative to motive, that isn't any
nobody's ever talked about succession plan. But you are right. The power now lies are the regional leaders, those allies and Modi is after we could see a hung parliament in both sides the opposition as well as the b Japs fail to get that majority, So a lot of like state right now, we don't really know for sure Modi remains in power, remains the Prime minister a week from now.
So has we've talked a little bit about the economic backdrop. I'm curious about Modi's Hindu nationalism and whether or not that played a role as well. Well.
I guess in a way it did play a role. I mean, body tried to rule the Hindus in the country. That means eighty percent of the population. But if you take a look at the most populars state out there, that is Uja Pradesh, mainly Hindus. In fact, he recently erected the Rum Temple, which replaced a mosque which was there since the eighteen fifties. But then again that did not translate to more votes for him. At the lost election in twenty nineteen, the BJP secured sixty two seats
out of the eighty available up for grabs. This time round, that was reduced to only forty seats. If you want to win the overall election, you need to win Uta Pradesh. And so barren lies the evidence that Hindu nationalism that Modi has been touting all the time on us for the lost and years has not really worked.
So has I think we need to kind of put this in the category of another wealth divide story. It's evident that people at the lower end have suffered a little bit, even though even though India has seen dramatic growth rates and has a target of eight percent ongoing. So what are the changes that Mody might have to put in place to satisfy those people who voted against him.
It's about income inequality, right, I mean income inequalities at the widest in twelve years. And when it comes to getting help from the government, eight hundred million people out of the one point three billion people get free grain from the government. Therein lies how poverty looks in India. More, he needs to ensure that wealth gets distributed more evenly to the people. He's concentrated, some say on the wealthy in the country. He's concentrated on manufacturing in getting investments.
The likes of Google and Apple have made huge investments in the south of the country. But that's not translating to real jobs for the people, not translating to real wealth. So the question really is what does he needs to do or perhaps he needs to grow the services sector
even more. Some like Graham Rajan, who's a farmer IBI governor, he's been saying that services can create the kind of jobs that right now India needs structural changes and if what he remains in power in the next five years, he needs to look at that, raise consumption levels, raise the level of the quality of life for the ordinary Indians.
Haz thank you so much for making time to chat with us, filling us in on the details surrounding the election in India, where Prime Minister and Arndra Modi vowed to continue in his role after his party did lose its majority in parliament. Has Linda Ahman, Bloomberg's chief international correspondent for Southeast Asia, joining us from Delhi here on Daybreak Asia.
Joining us now is James Demmer, chief investment officer at Main Street Research. James plenty of time to talk about the US. I wanted to get some reaction here to the strong reaction that we saw in the election results from Mexico and India. The landslide VI three by Claudia Scheinbaum in Mexico rattled markets there. It strengthens the hand of the leftist of the ruling leftist party, So that's one thing, and then the result in India may Weakennuendra
Modi's hands. So I'm wondering if you've looked at this and whether there's any sort of invisible thread takeaway from these results for emerging markets.
Thanks Brian. Yeah, I think there are there are a number of takeaways here, and I think markets absolutely were not expecting this in Mexico or certainly in India, and it is definitely a blow to equities and this very pro growth era that Modi's had, you know, eight hundred million Indians and as you mentioned or was mentioned earlier, six hundred and forty million going to the polls was a big surprise, a big move towards the Gandhi administration and the big changes that they see. And this is
not a positive for equities, no question question. And that's why you're seeing the big sell off, the significant selloff and even in bigger in individual names and indexes. And we would suggest investors here, you know, you wanted to use risk management tools here, stop losses whatever, because even though Mody thinks that he may gather enough to stay in power, it looks less likely and definite an uphill battle for him and also for equity markets there.
Yeah, and I'm wondering whether or that was a part of the stable situation for the dollar today. You would expect with lower treasury bond yields and expectations now that, Yeah, maybe the Fed is going to have room to cut rates. The dollar held in and we had a rally in the end, So currencies that may be a little bit of a kind of a safe haven. Is that going to be the case going forward, favoring haven currencies?
Yeah.
I think whatever you have these kind of disruptions, and we've seen a lot of them over the last thirty years, there's going to be a flight to qualities to stability. The US dollar is absolutely going to be a beneficiary of that. That certainly saw that today.
So with bond yields down, in the dollar down, we've entered this period here where it seems like, you know, the what we had before, which is bad news is good news. That that's giving way to bad news is bad news. People want to see growth hang in there. It's it's a little bit of a concern, but it's not yet a scare, right. I mean we haven't had dramatic economic data suggesting any sort of meaningful move down, right.
Yeah, I would agree with that, and I think investors continue in general to focus maybe on the wrong thing. I mean, you've got people, you know, really parsing through the inflation data, which frankly has has gone in the right direction, you know, certainly lower over the last couple of years and closer to the FEDS target. And you know, jobs reports, you know they ebb and flow, but they
generally speaking are healthy. So you know, in our view, you know, this is a great setup for equities if you stop thinking necessarily about the economic data, which is generally speaking better, and focus more on earnings. I mean, the last two quarters and we can get deeper into that have been much better than expected to a wide degree. So earnings are what drive stocks once you get the Fed out of the way, and we think they are out of the way.
So if the fit is out of the way, I'm imagining that you think, okay, they're going to still be in a position to cut rates this year. How much do you think we're going to see in terms of easing between now and December.
You know, we've been of the thought that this economy growing at north around four percent, let's call it, and positive earnings and particularly recently more broadening of that earnings growth, that the Fed may not have to do anything. And you know, again recent data, most specifically cooling jobs and inflation, suggested they could cut, now, that's super bullish. If they can cut in September, which probably the futures markets say
possibly September, certainly November. Now that's another layer of bullish data and potential strategy that would work for equities. Here. Our feeling is that equities can do continue to do fine even if the FED sort of stays out of the way and the economy grow up and again or inaction to be where they are.
In fact, many would say that that might even be better to have the FED just stay what it's been doing, because once you start getting some cuts, you know, some people will worry that there's something under the hood and all that. This is an interesting period that we're coming into here. No earnings basically now for several weeks, and the FED is I mean, it's what it's saying, it's data dependence. We can see the same data they see, so you're not going to get much of a surprise.
They don't really want to surprise the market here. So do you think that the drift is lower or the drift is higher?
You know, I would suggest I hate to say this, it's kind of boring, but I think it's choppy. I don't think you're going to see an economy that gets real weak here, particularly here in the US, and I don't really think that you're going to see any significant more strength than we have. I mean, four percent is a higher growth rate than we've really seen in GDP
for the last ten years. So we've got an economy that seems to be much more resilient, growing at a much higher pace, and we don't think that it's going to accelerate a lot from here. But we also just can't see how it's going to sort of get accelerate at any significance. So again that's why we think the FED doesn't necessarily certainly need to cut I mean, I'm sorry, raise rates, and probably without meaningful deterioration, probably isn't going to be interested in cutting.
So what area is the market do you like, James, as we wrap up here, is it industrials, materials? Given the economic sensitivity of those groups. Do you like artificial intelligence and the tech trade? Do you want to chase that? What do you favor these days?
Yeah, it's a new business cycle. You got the FED out of the way. Ernie's going to drive stocks the next seven to eight years, and we want to focus on where that Ernie's growth is going to be. That's tech and telecom because of the AI tailwinds, and then how does that affect everything else. You got to own the financials like JP Morgan or healthcare industrials and the utility sector with the expanding grid to absorb all this energy, we're going to need to run. These chips going to
be important sectors. So investors should be here and be bullish. Stocks are relatively cheap based on forward earnings. I think it's a great setup requities.
Yeah, all right, James, thanks very much for joining us. James Demmer at, Chief Investment Officer, Main Street Research.
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