Modi's Magic Is Casting a Spell on Indian Stocks

Updated on
  • Helios Capital sees $15-$20 billion a year inflows into India
  • Financial firms, drugmakers among top picks for those surveyed

Indian Stocks Get Post-Election Boost

Prime Minister Narendra Modi’s election-win magic looks to be casting a spell on the Indian stock market.

The S&P BSE Sensex index will climb to 32,000 by the end of December, up more than 8 percent from its close of 29,518.74 on Monday, according to a median estimate of eight traders and investors surveyed by Bloomberg News on March 14, three days after Modi’s landslide victory in state elections. Financial companies and drugmakers are among their top picks on optimism the result will open the gates to foreign cash.

“India will get $15-$20 billion a year from emerging-market allocations, which will partly get a boost due to political stability after Modi’s win in state elections,” said Samir Arora, Singapore-based founder of hedge-fund firm Helios Capital Management Pte. “I would buy even now, but be selective. The market is in good hands.”

Read more: India State Vote Holds Key to Modi’s Future: QuickTake Q&A

The optimism comes even after the post-election rally made Indian stocks the most expensive in Asia, according to data compiled by Bloomberg, as their one-year forward price-to-earnings ratio climbed to the highest since 2010.

The benchmark fell 0.4 percent in Mumbai on Monday, after marking its highest level since March 2015 on Friday. Its relative strength index has risen above 70, a level some investors see as a signal to sell.

India’s price-to-earnings premium to MSCI Asia Pacific ex-Japan Index has come down to 26 percent versus an average 40 percent and a peak of 50 percent over the past two years, Goldman Sachs Group Inc. analysts led by Sunil Koul wrote in a note on Friday. Risk from foreign positioning is low as emerging market and Asia ex-Japan mutual funds’ overweight on India has come down to 330 basis points from 550 basis points during the 2015 peak, according to the note.

Overseas investors bought a net $1.56 billion of Indian shares in February, ending a four-month selloff. They have already purchased another $2.43 billion in March, with $867.6 million of it coming in just two days following the state-election results.

Read: CLSA Sees India Rally Pushing Up Nifty Gauge to 10,350-12,000

Foreigners began 2017 looking for reasons to sell India, but capitulation has begun, and the election result would further accelerate that trend, Christopher Wood, CLSA Ltd.’s Hong Kong-based equity strategist, wrote in a note Thursday. Renewed weakness in oil prices may act as another positive for India in the emerging-market context, Wood added.

Note: Respondents in the survey are from Equinomics Research & Advisory Pvt., IDBI Capital Market Services Ltd., Motilal Oswal Asset Management Co., Religare Capital Markets Ltd., India Infoline Ltd., Guiness Securities Ltd., OmniScience Capital and Kotak Mahindra Bank Ltd.

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