Industrials and lenders led Indian shares to a record high, offsetting losses in software and health-care companies, as Narendra Modi’s election victory spurred stocks that benefit most from a stronger economy.
Bharat Heavy Electricals Ltd. (BHEL) had the biggest gain in five years, sending a gauge of machinery makers to the highest level since January 2011. State Bank of India rallied to a three-year high. Tata Consultancy Services Ltd. (TCS) and drugmaker Dr. Reddy’s Laboratories Ltd. (DRRD) paced losses in defensive stocks. The rupee touched an 11-month high.
The S&P BSE Sensex (SENSEX) climbed 1 percent to 24,363.05 and the CNX Nifty Index added 0.8 percent on volume that was twice the 30-day average. Modi’s opposition bloc swept to power on May 16 as voters tired of sluggish economic growth handed a historic defeat to the ruling Congress Party. The win puts Modi in a position to take steps to boost the economy, spurring optimism it will lead a recovery among the largest emerging markets.
“Investors are buying cyclicals on optimism the economy will turn around within the next two years,” R.K. Gupta, managing director of Taurus Asset Management Co., which oversees about $585 million, said by phone from New Delhi. “Software and drug exporters are under pressure as a strong rupee will erode their margins.”
All of the 10 biggest gainers in the MSCI Emerging Markets Index, which increased 0.4 percent, are Indian stocks. Reliance Infrastructure, Jaiprakash Associates and Bharat Heavy jumped at least 15 percent. Software companies Tata Consultancy and Infosys Ltd., and Sun Pharmaceuticals Ltd., led the losses on the gauge, data compiled by Bloomberg show.
Broad Market Rally
The S&P BSE Small Cap Index jumped 5.8 percent, the most since May 2009, as 367 of the 448 stocks on the gauge advanced. The top 15 gainers in the S&P BSE 500 Index surged at least 20 percent, while 140 stocks on the gauge rose to a 52-week high, the data show. The Bank of New York Mellon India ADR Index of stocks traded abroad slipped 0.6 percent after the close of trading in Mumbai.
Coal India Ltd. (COAL) rallied 12.6 percent, the sharpest gain since November 2010, on optimism a new federal government will remove obstacles to boost output at the world’s biggest miner of the fuel. Copper producer Sesa Sterlite Ltd. (SSLT) climbed to more than a two-year high.
The BJP’s election win “will benefit the economy and the markets,” S. Naren, chief investment officer at Mumbai-based ICICI Prudential Asset Management Co., said in a phone interview today. Naren, who oversees $18.3 billion, said he prefers “economy-sensitive” companies, and will avoid drugmakers, software exporters and producers of consumer goods.
TCS, Dr. Reddy’s
Tata Consultancy tumbled 5.7 percent to the lowest level since Dec. 16. Infosys and Wipro lost more than 4 percent each, dragging down an index of software makers to a seven-month low.
Dr. Reddy’s slid 5 percent, the most since January 2010. The BSE Healthcare Index lost 3.7 percent, the sharpest decline since May 2009.
Modi, the son of a tea seller, is favored by business leaders because of his record in Gujarat. The state he’s led since 2001 has attracted investments by companies such as Reliance Industries (RIL) Ltd. and Ford Motor Co., while its per capita income nearly quadrupled during his tenure to 61,220 rupees ($1,040), faster than the national average.
If Modi pursues the anti-corruption policies he’s promised, India has the potential to grow about 10 percent annually for the next 20 years, according to Jim O’Neill, former chairman of Goldman Sachs Asset Management.
The Sensex has climbed 15 percent this year and trades at 15.1 times projected 12-month earnings, the most expensive level since May 2011. The MSCI Emerging Markets Index is valued at 10.7 times, data compiled by Bloomberg show.
Foreigners bought a net $627.8 million of local shares on May 16 after the general election results, the most since March 21, data complied by Bloomberg show.
To contact the reporter on this story: Santanu Chakraborty in Mumbai at firstname.lastname@example.org