 "Sensex")
Indian stocks reached a new high Monday, powered by foreign funds optimistic the country’s prime minister, Narendra Modi, will use his growing popularity to accelerate the pace of change and keep Asia’s third-largest economy expanding as much of the world struggles with slowdowns and uncertainty about how U.S. President Donald Trump’s policies will affect trade.
India’s bellwether S&P BSE Sensex broke a two-year-old closing record Monday as it rose to end trading at 29,910.22.
India has outperformed most developed and emerging markets this year. The index is up more than 11%, while key indexes in China, Brazil and the U.S. are up between 4% and 8%, and Russian stocks are down. Meanwhile, the rupee has risen 4.5% against the dollar since January.
Overseas investors bought a net $8.57 billion worth of Indian shares and bonds during March in the hope that Mr. Modi will be able to step up his plans to revamp the often inefficient and overregulated Indian economy.
Last month’s state elections proved the prime minister’s popularity was actually bolstered by his controversial decision to nullify close to 90% of the country’s cash late last year. The move—which was aimed at punishing tax evaders and other criminals who hoard cash—slowed growth and forced millions of Indians to stand in line at banks for hours to exchange old notes. Still, voters rewarded Mr. Modi’s Bharatiya Janata Party in state elections, indicating they were willing to go through the pain if they thought it was for the good of the country.
“It signals to investors that this administration will be able to push through a lot of the reforms and restructuring that it wants to do in the future,” said Zhikai Chen, head of Asia Ex-Japan equities at Lombard Odier, which has money invested in India. “We are seeing a pretty resilient economy on the back of this surprise demonetization exercise."
The BJP’s landslide victory in the state of Uttar Pradesh indicates it will be tough to beat in national elections in 2019, allowing Mr. Modi to expect a second term in office and less resistance to his reforms, infrastructure spending and other programs.
In the latest example of the Modi administration’s growing confidence, last week it passed a landmark revamp of the country’s messy tax system which had been stuck for years.
India could end up as a haven of sorts in times of trade uncertainty, some India optimists say, as it is less dependent on exports for growth than other Asian economies like China and South Korea.
“There’s not a huge technology supply chain, a manufacturing base that you see in some of the north Asian economies,” so India is less exposed to any slump in exports to the U.S., said Andrew Gillan, a fund manager at Henderson Global Investors (Singapore) Ltd., which manages than $200 million of investments in India.
President Trump is expected to demand more investment and fewer imports from countries with big trade surpluses with the U.S. India’s software and outsourcing as well as its pharmaceutical businesses could be hurt by new barriers to trade, but the South Asian nation has much less to lose than the big exporters.
“India is being seen as a relatively resilient place to invest because quite a bit of the economy is driven by domestic consumption,” said Adrian Lim, a Singapore-based senior investment manager, Asia (ex Japan) at Aberdeen Asset Management , which manages $11.5 billion of assets in India. “More than two thirds of the stocks listed (on the Sensex) are driven primarily by domestic demand, something you can’t see on the Chinese benchmark.”
To be sure, being an outlier has made India a bit expensive, analysts say, with price-to-earnings ratios suggesting there are more affordable emerging markets out there. Still, India bulls say they see the country as a good long-term bet as earnings will likely catch up with prices in the next year.
“India remains a compelling investment market for us because the earnings growth remains high relative to the rest of the region,” said Mr. Gillan.
Source: The Wall Street Journal
