Indian stocks rose to record highs in a volatile trading session after vote counts showed the main opposition alliance set for the biggest election win in 30 years. The rupee strengthened, while the India VIX tumbled.
The S&P BSE Sensex (SENSEX) increased 0.9 percent to 24,121.74, after swinging between a gain of 6.1 percent and a loss of 0.1 percent. The rupee rose 0.9 percent against the dollar. The India VIX sank 34 percent as the stock market moved in a narrower trading range than the last election in 2009, when the Sensex surged 17 percent. The Bank of New York Mellon India ADR Index gained 3.4 percent after the close of trading in Mumbai.
The value of Indian equities has climbed by more than $330 billion since Sept. 13, when the opposition Bharatiya Janata Party named Narendra Modi as its candidate for prime minister. While analysts have speculated Modi will do more than the ruling Congress Party to revive economic growth, some investors sold shares today to lock-in gains, said Alex Mathews, the head of research at Geojit BNP Paribas Financial Services Ltd. Tom DeMark, the creator of indicators to show market turning points, said on May 13 that stocks may have a “final impulse to the upside,” followed by a retreat of about 11 percent.
“The market has largely discounted quite a lot of the positive news,” Sam Mahtani, a director of emerging markets at F&C Asset Management Plc, which oversees about $150 billion, said in a telephone interview from London. “There has to be little bit of consolidation and profit taking.”
Lenders including ICICI Bank Ltd. (ICICIBC) were among today’s biggest gainers as investors speculated faster economic growth will lead to higher credit quality, while power companies surged on bets that improved infrastructure will boost electricity use. Adani Enterprises Ltd. (ADE), one of the biggest companies in Modi’s home state of Gujarat, climbed 5.8 percent to the highest level since September 2011.
Technology, health-care and consumer staples companies, favored industries as India’s economy slowed to near the weakest pace in a decade, retreated today as investors shifted money into stocks that are more geared to recovery. Infosys Ltd. (INFO), an exporter of software services, and ITC Ltd. (ITC), a producer of cigarettes, were the biggest drags on the Sensex.
Trading in CNX Nifty index shares surged to levels 165 percent higher than the 30-day average, according to data compiled by Bloomberg. The gauge’s intraday swing was the biggest since an eight-second crash in October 2012, which was spurred by mishandled trades and briefly erased more than $50 billion of value.
Global funds bought a net 36.3 billion rupees of Indian stocks today, the highest single-day inflow since March 21, according to provisional data from the exchanges.
The Sensex has climbed about 14 percent this year and trades at 15 times projected 12-month earnings, the most expensive level since 2011. The MSCI Emerging Markets Index is valued at 11 times.
The BJP and its allies lead in 334 of 543 seats up for grabs, more than the 272 needed for a majority, according to NDTV. Proponents see Modi, who has overseen annual economic growth of 10 percent as the head of Gujarat state since 2001, as a leader who can speed up infrastructure projects, while opponents blame him for 2002 riots that killed about 1,000 people, mostly Muslims. Modi rejects accusations of any wrongdoing.
Public works projects helped Gujarat outpace the national economic growth rate in 11 of the past 12 financial years for which data is available. The BJP has pledged to construct 100 new cities, build high-speed railway lines and roll out a national fiber-optic network.
“If the government can really push itself, then confidence will increase further,” Rakesh Arora, the head of research at Macquarie Capital Securities India Pvt. and the most accurate forecaster for the Sensex in 2013, said by phone. He raised his Nifty target for the year to March 2015 to 8,400 from 7,200. The gauge rose 1.1 percent to a record 7,203 today.
Weak growth and Asia’s second-fastest inflation have eroded purchasing power in a nation where more than 800 million people live on less than $2 per day.
Projects worth $230 billion are awaiting clearance as lawmaking stalled in Prime Minister Manmohan Singh’s coalition, data from the Cabinet Committee on Investment show. Subsidy bills rose fivefold in the past decade to 2.6 trillion rupees ($44 billion) a year, a period in which the Indian economy only doubled in size.
“This is comparable to the election of Ronald Reagan in the U.S. or Margaret Thatcher in the U.K. in terms of the pro-business stance we expect the Modi government will take,” Sam Gupta, the chief investment officer of Grand Trunk Capital, a Palo Alto, California-based investment firm that invests in India, wrote in an e-mail. “We are very excited about the opportunities this presents.”
Nine rounds of voting started on April 7 to pick representatives in the world’s largest democracy. Turnout averaged a record 66.4 percent, the Election Commission of India said, compared with 58 percent in 2009 and the previous high of 64 percent in 1984. A Congress party spokeswoman conceded defeat today, before the final tally was released.
“Modi is very popular,” Adrian Lim, a Singapore-based money manager at Aberdeen Asset Management Plc, which oversees $322 billion worldwide, said in an interview on Bloomberg TV India today. “So many people within the country are tired of what has happened over the last two to three years, where administration and governance has taken a back seat.”