Indian Stocks May Jump 14% in 2013 on Policy, Deutsche Bank Says

India’s benchmark stock index may advance a further 14 percent this year if the Indian government and central bank sustain policy measures to boost economic growth, Deutsche Bank AG wrote in a report released today.

The BSE India Sensitive Index, or Sensex, may rise to 22,500, led by financial, energy, industrial, material and information technology stocks, according to the report by Deutsche Bank strategists Abhay Laijawala and Abhishek Saraf.

The gauge climbed to more than 20,000 for the first time since January 2011 today, and traded 0.2 percent higher at 19,933.39 at 9:26 a.m. in Mumbai. Stocks jumped yesterday after data showed the benchmark inflation rate slowed to a three-year low in December, widening the Reserve Bank of India’s scope to reduce borrowing costs to revive the economy. The central bank signaled last month that monetary policy must shift toward aiding economic growth, predicting inflation will moderate in an economy expanding at the weakest pace in a decade. The authority meets for its next policy review on Jan. 29.

“The onus of transition from vicious to virtuous will initially lie with New Delhi and the Reserve Bank of India during the first half of 2013 before the baton is taken up by the private sector in the second half of the year,” according to the report.

The Sensex had its biggest annual rally last year since 2009 as Prime Minister Manmohan Singh took measures to attract foreign investment to boost growth and to avert a credit-rating downgrade. Overseas funds bought $24.5 billion of local shares in 2012, the most among 10 Asian markets tracked by Bloomberg.

Cyclical Stocks

Cyclical and rate-sensitive stocks will lead the rally in Indian shares this year, according to the report. Lenders Axis Bank Ltd., Bank of Baroda and Punjab National Bank are among Deutsche Bank’s top picks for 2013, along with Bharat Heavy Electricals Ltd., India’s biggest power-equipment maker, and Larsen & Toubro Ltd., India’s largest engineering company.

The bank also recommended Maruti Suzuki India Ltd., the biggest carmaker, Reliance Industries Ltd., owner of the world’s largest refining complex, Tata Steel Ltd., the nation’s biggest producer of the alloy, Tata Consultancy Services Ltd., India’s largest software services exporter, and cement maker Ultratech Cement Ltd.

The report rated consumer staple, health-care and utility stocks underweight, the equivalent of sell.