Analysts predict long bull run for Indian stocks

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#1
Analysts predict long bull run for Indian stocks

Theme is growth: Analysts favour banks and industrial companies and advise switching from defensive sectors. Indian equities gained 37% since Mr Modi was named as candidate for prime minister on Sept 13. - PHOTO: BLOOMBERG
[MUMBAI] Indian stock investors agree with the nation's voters on at least one thing: it's time for new leadership.
As Narendra Modi's opposition bloc secured the largest electoral victory in 30 years on Friday, the biggest gainers in India's equity market were the companies likely to benefit most from a strengthening economy. That's a turnaround from the last three years, when investors favoured so-called defensive shares, such as drugmakers and consumer staples producers.
The shift underlines the growing conviction that Mr Modi, 63, can replicate the economic success he enjoyed in Gujarat state when he takes over as prime minister of the most populous democracy.
The victory spurred Macquarie Capital Securities India's Rakesh Arora, the most accurate forecaster of the S&P BSE Sensex in 2013, to advise switching into State Bank of India from cigarette-maker ITC Ltd.
CLSA Asia-Pacific Markets made Jaiprakash Associates, a builder of power plants and highways, one of its top regional picks.
"We will be in a bull run for the next three to five years," Shishir Bajpai, a director at IIFL Wealth Management, said. "We will look closely at shares of banks, utilities and industrials as they are likely to perform better."
The value of Indian equities has risen by US$371 billion, or 37 per cent, since the Bharatiya Janata Party named Mr Modi as its candidate for prime minister on Sept 13.
Foreigners ploughed US$14.4 billion into local shares during the period amid speculation that Mr Modi will do more than the outgoing Congress Party- led alliance to revive economic growth from near the weakest pace in a decade.
Shares of companies most tied to the economy are valued about 10 per cent below their long-term averages versus defensives, Macquarie's Mr Arora wrote in a note on Friday.
He increased his overweight rating on financial services and industrial companies, too, while cutting technology and drugmakers to underweight. He raised his Sensex target for the fiscal year ending March 2015 by 15 per cent to 28,000.
Deutsche Equities India raised its year-end target by 17 per cent to the same level as Mr Arora's while advising investors to focus on banks and energy companies.
With the BJP-led alliance winning 336 of the 543 seats up for grabs, more than the 272 required for a majority, Mr Modi has a "much greater chance" of making changes needed to boost investment, Christopher Wood, chief equity strategist at CLSA Asia-Pacific Markets in Hong Kong, wrote in a note on Friday.
Aberdeen Asset Management favours Indian producers of raw materials, including cement, said Adrian Lim, one of the firm's Singapore-based money managers, on Friday.
"They are starting to pick up on the back of a cyclical recovery and are likely to be notable beneficiaries of an investment revival," said Mr Lim, who helps oversee US$322 billion worldwide. He didn't name any companies.
While the BJP won the biggest victory for a single party since 1984, Mr Modi will still need to work with state governments on land use, water and electricity policies, said Frederic Neumann, the co-head of Asian research at HSBC Holdings in Hong Kong.
Only nine states adopted the Congress party's 2012 blueprint to allow 51 per cent foreign ownership of multi-brand retailers. South Korea's Posco has been waiting for land and environmental clearances to build a US$12 billion steel plant for nine years.
"If the next government fails to lift confidence, its task of turning the economy around will get heavier," Standard & Poor's analyst Takahira Ogawa said.
The BJP's landslide win has raised the chances of "more decisive policy action", Masha Gordon, the London-based head of emerging market equities at Pacific Investment Management Co, said on Friday. Shares of lenders "are not a bad place to be", she said.
India's credit rating may be considered for an upgrade if the new government cuts the budget deficit, simplifies rules on investment and builds infrastructure, said Atsi Sheth, a sovereign analyst at Moody's Investors Service in New York.
Moody's has a Baa3 rating on the nation, the lowest investment grade. - Bloomberg
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#2
Opportunistic trades on this could have been INXX (EGShares India Infrastructure ETF) or SCIF (Market Vectors India Small Cap ETF) both traded in US. Both have run up quite a bit in the last few months, so you may be too late (depending on your opinion about where this is going). Caveat Emptor as they say...
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