REUTERS: Nearly two years after Narendra Modi was elected as India’s prime minister with an ambitious business-friendly agenda, the feeble pace of reforms is starting to test the patience of one of his biggest group of supporters: foreign investors.
Long overshadowed by China’s spectacular rise, Modi’s powerful electoral mandate stirred hopes that India finally had a leader capable of boosting its underwhelming investment climate and stolid global image.
However, in a disappointingly reminiscent narrative of previous administrations, partisan politics and a hostile opposition have stalled Delhi’s reform push, including delays to legislation on an important goods and services tax sought by businesses hamstrung by existing, cumbersome levies.
Foreign investors are showing their displeasure by heading for the exit, dumping a net US $ 2.4 billion in shares this year - the second-biggest outflows in Asia excluding China, according to exchange data around the region.
A critical test now awaits Modi on Monday when the government unveils its budget for the year starting in April, giving the prime minister an opportunity to turn around views of the likes of Sergio Trigo Paz who said that India and Mexico were no longer the darlings of foreign investors.
“These reform stories (Mexico and India) have run their course, and if anything, they are looking pricey,” said Paz, who is head of emerging debt at BlackRock in London.
“A lot of overly positive expectations have been built. They need to reprice sometime, and that’s what we will see.”
The NSE share index has slumped about 12 percent this year and around 24 percent from its record high of March last year, helping to send the rupee dangerously close to near an all-time low against the dollar.
Stock prices are now lower than they were in May 2014 when Modi swept to power with the biggest electoral mandate in three decades with a promise to deliver jobs to millions of youth and to transform India as a magnet for business.
Foreign investors have also turned sellers of Indian debt with net outflows at US $ 833.5 million. That contrasts with US $ 54.6 billion in debt and equity investments over 2014 and 2015.
After rallying over 2014 and 2015, the benchmark 10-year bond has retreated this year, sending its yield up around 11 basis points to its highest since late August.
Some of this selling mirrors a wider downturn in global markets but foreigners are no doubt disillusioned with the slow pace of the much vaunted reform process.