India’s benchmark stock index will climb as much as 6 percent to a record by year-end if state election results this weekend confirm gains by the nation’s main opposition party, according to a Bloomberg survey.
Victories by the Bharatiya Janata Party in four of five states that held elections over the past month, a prelude to national voting next year, would send the S&P BSE Sensex index to almost 22,200 from its closing level of 20,957.81 yesterday, according to the average of 10 estimates compiled by Bloomberg. An exit poll Dec. 4 signaled the BJP, which picked Narendra Modi as its choice for prime minister, will win four states.
Modi’s home state of Gujarat has recorded annual economic growth of 10 percent, lured investments by companies from Ford Motor Co. to the Tata Group and raised power generation capacity more than fivefold since he became chief minister in 2001. India’s economy posted its slowest growth in a decade last year and suffered its worst power crisis in July 2012, eroding investor confidence in the leadership of Prime Minister Manmohan Singh’s Congress party.
“Investors are extrapolating what Modi did in Gujarat, betting he will be able to replicate that at the national level,” Paras Bothra, vice president for equity research at Ashika Stock Broking Ltd., said in an interview yesterday.
The Sensex rose 0.2 percent to 20,996.53 at the close in Mumbai. The gauge has advanced 8.1 percent this year, the most among the four largest emerging markets, as growing exports boosted earnings and stimulus from the U.S. Federal Reserve spurred foreigners to pour almost $18 billion into India’s $1.1 trillion stock market. That’s the biggest inflow in Asia after Japan, according to data compiled by Bloomberg.
The Indian stock gauge is valued at 13.7 times projected earnings for the next 12 months, versus the five-year average of 14.2 times, the data show. The MSCI Emerging Markets Index, which has lost 5.5 percent this year, has a multiple of 10.5.
The BJP is poised to retain two states, take power from Congress in another and win the most seats in the capital New Delhi, according to an exit poll on Dec. 4 conducted by C-Voter and broadcast on the Times Now channel. Official vote counting in the states, home to about a sixth of the nation’s 1.2 billion people, will take place on Dec. 8.
BJP wins in three states would spur an increase of about 3 percent in the Sensex, while victories in two would result in a 3 percent drop, according to the survey of brokerages including Motilal Oswal Financial Services Ltd. and Edelweiss Financial Services Ltd.
Investors are optimistic that a strong showing from the BJP in state elections will make it easier for the party to build a stable ruling coalition in national elections next year, Alex Mathews, the head of research at Geojit BNP Paribas Financial Services Ltd., said in an interview from Kollam in southern India yesterday.
“If the polls are correct, it should also help the BJP to secure support from smaller regional parties,” Mahesh Nandurkar and Abhinav Sinha, analysts at CLSA Asia-Pacific Markets, wrote in a report dated yesterday.
While Modi is projecting his record of governance and stronger-than-average economic growth in Gujarat, the Congress party has attacked him over his handling of the 2002 riots in the state that killed about 1,000 people, mostly Muslims.
The 2002 carnage, which has left Modi barred from the U.S., followed the killing of Hindu activists in a train fire, a blaze for which Muslims were later found guilty. Modi denies any wrongdoing and a Supreme Court-appointed panel probing one documented incident found no evidence that he made decisions that prevented victims from receiving assistance.
The last time a BJP-led alliance was in power, during the five years through May 2004, the Sensex climbed about 1.5 percent annually and lagged behind the MSCI emerging market index’s 4 percent yearly gain. The Sensex has advanced at a 18 percent annual pace since the Congress-led alliance came to power in 2004, versus 13 percent for the MSCI index.
Investors shouldn’t extrapolate state elections to the national level because the BJP has a disproportionately large presence in the states that voted, according to Dipen Sheth, the head of institutional research at HDFC Securities Ltd., said by phone yesterday.
“Even though there’s been a lot of damage to the Congress franchise, it will be premature to suggest that there will be a wave in favor of BJP,” Sheth said, adding that he’ll advise clients to sell if the rally persists.
The BJP will win 162 seats in national elections, up from 116 it holds now, with its six-party alliance taking 186 seats, according to a poll by C-voter agency, India TV and Times Now published in October. The survey of 24,284 people showed the Congress-led coalition winning 117 seats -- about half its current total -- with other parties winning the rest.
India’s business leaders have praised Modi for fast-tracking projects in a country ranked last among the four largest emerging markets in the World Bank’s 2013 Ease of Doing Business Index.
The Tata Group, India’s biggest business house, chose Gujarat in October 2008 to relocate a factory for its Nano, the world’s cheapest car, after getting permission from state authorities to build the plant within three days.
“Most of us in India have come to regard a time frame of six months or three months as an average time to get clearances,” Ratan Tata, chairman of Tata Group, said in January 2009 in Ahmedabad. “In this particular case, that tradition was shattered.”
Ford Motor, the second-largest U.S. automaker, chose Gujarat for its second plant in India over other states such as Maharashtra, Haryana and Punjab. It has also lured companies including General Motors Co. and Hitachi Ltd. Gujarat built Asia’s largest solar field and became the only state in India to have surplus electricity.
India suffers from peak-hour power shortages of as much as 25 percent in some areas. Excessive demand on the national grid knocked out power for 640 million people in northern and central states on July 31, 2012, a day after a separate blackout left 360 million in seven states without lights.
“I have no business in Gujarat but I have seen what he has done to the state,” billionaire Anil Agarwal, who controls London-based Vedanta Resources Plc, said in an interview with Bloomberg TV India in New Delhi aired Nov. 29. “If he comes, everybody will welcome it. We need a government that is stable and which has faith in the industry.”