And it's off...
The largest democratic exercise in history is officially under way in India, with 900 million potential voters heading to the polls.
The challenge is immense. The outcome unpredictable. The market response in the balance.
The seven phases of voting will take five weeks, until May 19, with results due May 23. Until then, nothing is sure. Nomura notes that "opinion polls should be taken with a generous pinch of salt."
The opinion polls missed the exceptional surge in popularity of incumbent Prime Minister Narendra Modi in the last election, with Modi's party in 2014 becoming the first in 30 years to claim an outright majority. They missed a swing in favor of the opposition the previous time around. And they called the one before that all wrong.
Modi is a business-friendly reformer. Since his election in 2014 he has ushered in a real estate reform law that is corralling a cowboy industry. He oversaw the introduction of a nationwide sales tax that makes commerce across state borders far easier. Oh, and his central bank basically abolished all the money! In 2016, 86% of all notes were declared worthless in a bid to drive India's cash-driven society above board and online.
The cash experiment kinda worked. Modi's other reforms have been more successful. The best outcome from the point of view of the markets would be if Modi wins a resounding re-election, because it would be a vote of confidence in his attempts to modernize the economy.
But Nomura gives an outright majority victory for Modi only about a 10% chance. The most likely outcome, put at a 60% shot, is that Modi stays in power but only by forming a coalition. The opposition winning is a 30% probability that would be negative for Indian markets.
Modi's BJP, or Bharatiya Janata Party, is expected to retain its grip, somehow, so we can expect a further push for economic reform. Macroeconomic policies would remain the same. The more coalition partners, the slower the pace of reformist change.
The BJP has pledged to invest 100 trillion rupees (US$1.4 trillion) in infrastructure by 2024, equivalent to roughly half the country's annual GDP. That would boost urban development, digital connectivity, airports and energy, all vital components of the country's 21st century economy.
But in the election run-up, both the BJP and its opposition have turned their attention to India's rural hinterlands. The countryside has more in common with the 19th century than teched-up Bangalore, headquarters to homegrown software developers Infosys (INFY) , Wipro (WIT) and Mindtree (MNDQY) , or Hyderabad, now dubbed "Cyberabad" for its Microsoft (MSFT) development center and emphasis on bioinformatics.
India's literacy rate is by far the worst of the BRICS nations, at 71%, according to the CIA World Factbook. It's well below the global average of 86%, and Brazil, Russia, China and South Africa are all at 93% or higher. So the countryside certainly needs support.
The most bothersome recent aspect of BJP "rule" has been stirring nationalist sentiment. Modi's populist streak was only stoked by recent conflicts with Pakistan, and there are overt hints of a Hindu-first agenda that would drive greater divisiveness, too.
The lead opposition party, the Indian National Congress, has a more harmonious social stance. It is also notoriously corrupt. The Clinton and Bush clans have nothing on its star, an Indian Kennedy if there was one.
Fresh-faced Rahul Gandhi was preceded by a father, grandmother and great-grandfather who have all been prime minister of the nation. Father Rajiv and grandmother Indira were both assassinated; great-grandfather Jawaharlal Nehru was the independent nation's first leader.
The BJP saw its support jump after hostilities turned hot between India and Pakistan in late February in their contested territory in Kashmir. If it doesn't retain an outright majority, the BJP will depend more on its largest coalition partner, Shiv Sena, an outright Hindu nationalist party.
First, though, there's the monumental exercise of the voting. It began on Thursday, across 20 states and territories. The nation has pledged that nobody will be more than two kilometers (1.2 miles) from a polling station, meaning there are 1 million in place.
Amazingly, all the voting will take place electronically. The badge of honor to show you've voted is an indelible purple stripe on your index finger, which will only disappear when the nail grows out. At the last election, turnout was 66%, a few percentage points ahead of the last U.S. presidential election.
India's economy is now the fastest-growing major nation in the world, up 7.4% last year. In a changing of the guard over the last couple years it moved ahead of China, which posted a 6.6% advance in 2018.
Both markets have seen strong recent inflows from overseas investors, and for good reason. China and India not only have the strongest economies in Asia, but they also have the strongest earnings growth.
The ETF to watch if you're chasing those strong earnings is the WisdomTree India Earnings Fund (EPI) . It weights its portfolio by earnings rather than market capitalization, an interesting approach that removes the skew that you get toward big companies with market- or price-weighted indexes.
The iShares India 50 ETF (INDY) tracks big-cap stocks, 50 of India's largest companies. Up 7.5% so far this year, it's outperforming the broad-based iShares MSCI India ETF (INDA) , which is the largest India-specific fund. That's up 6.2% in 2019, lagging the broad SENSEX index.
Indian small-cap stocks are captured by the VanEck Vectors India Small-Cap Index ETF (SCIF) . They are up only half the broader market, with gains of 3.5% in 2019. They are more susceptible to regulation change and the shifting political sands. It's an asset class to leave alone until the election dust settles.