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As Indian Equities Make A Comeback, Here’s What Dalal Street Sees Ahead

Indian equity benchmarks made a comeback this month as investors looked beyond the U.S. President Donald Trump’s tariff wars and focused on the prospects of the current government in the national ballot in April-May.

Most market experts expect this rally to continue into the upcoming general election.

The S&P BSE Sensex and the NSE Nifty 50 have both climbed around 2.7 percent so far this year, with most of the gains coming in this month. The rally also showed up in the broader market with the index of mid-cap companies set for its biggest monthly gain since August 2018. The S&P BSE SmallCap Index gained 7.8 percent so far this month.

As Indian Equities Make A Comeback, Here’s What Dalal Street Sees Ahead

Easing geopolitical tensions, a week after skirmishes at the India-Pakistan border, has helped buoy sentiment toward equities, said Adrian Mowat, an emerging markets equity strategist.

Stocks rose further after the election commission announced dates for the 2019 Lok Sabha polls, and said the result will be unveiled on May 23. “Election will be over within the next two months, which is quite good for investors rather than them waiting,” he said.

Prime Minister Narendra Modi, whose Bharatiya Janata Party secured the biggest electoral victory in three decades in 2014, is expected to win the most seats but fall short of majority, according to opinion polls.

Here’s how it will impact India’s equity market according to market veterans:

Sanjiv Bhasin

With a clear end-date to the volatility that comes with the general election, the market will now continue its upward move, Sanjiv Bhasin, executive vice president of markets and corporate affairs at IIFL Securities told BloombergQuint.

Expect Indian markets to make new highs in April with the election uncertainty out of the way. So far midcaps had been despondent but from here on many of these names are expected to outperform the benchmarks and triple in value in two years.
Sanjiv Bhasin, Executive VP - Markets And Corporate Affairs, IIFL Securities

Chakri Lokpriya

The Managing Director and Chief Investment Officer at TCG Advisory Services agreed.

Geo-political tensions have reduced coupled with reduction in fiscal deficit, which has led to the Indian currency appreciating. Uncertainty of any adverse government regulation has been removed as of now. The broader markets will continue to rally going into the election season.
Chakri Lokpriya, MD And CIO, TCG Advisory Services

Mayuresh Joshi

Given the recovery of broader markets in the past few trading sessions, there seems to be more fuel to the rally of the Indian equity market going into the general election, said Mayuresh Joshi, senior vice president at Angel Broking.

Higher stimuli from external commercial borrowings and the expectation of a potential resolution to the trade war have mainly driven the uptrend. However, Brexit outcome could have a bearing in the manner in which equities and currencies move from a short-term perspective.
Mayuresh Joshi, Senior Vice President, Angel Broking

Vikas Khemani

Vikas Khemani, founder of Carnelian Capital Advisors, expects the market to rally as it does in every election year. The Sensex surged 30 percent in 2014 when Prime Minister Narendra Modi came into power, the most since the previous elections in 2009.

Yes, rally will continue, similar to the one that happened in 2014 before the elections. Also globally interest rates are expected to go down which will be beneficial for emerging markets.
Vikas Khemani, Founder, Carnelian Capital Advisors

Mihir Vora

While Mihir Vora, director and chief investment officer at Max Life Insurance, expects the market to move upwards, he warned that the pace would differ due to multiple global headwinds.

The rally will continue but not at the same velocity. The current momentum factors in events like Brexit, negative GDP globally and China trade deal.
Mihir Vora, Director And Chief Investment Officer, Max Life Insurance

Adrian Mowat

Individual stocks will be a bigger theme in India for global investors this year, compared to a cyclical play in other emerging markets, market veteran Adrian Mowat told BloombergQuint. “When I look at the way the Indian market has traded this year compared to other emerging markets, there is a big dispersion between the top and bottom performing stocks in the Nifty.”

I don’t see anything at a macro-economic level which justifies such high earnings growth (estimated at 18 percent) out of the Indian market. If we think about it in terms of nominal GDP, perhaps India delivers around 10 percent growth.
Adrian Mowat, Emerging Market Equity Strategist

India’s export sector will also not have the boost from a weaker rupee it had last year, he said. “If I look at the exporters and the lack of a clear acceleration in the economy, I remain skeptical about those high EPS numbers and the vulnerability will be in the lower quality names which makes one have a relatively expensive high-quality portfolio if you're a dedicated Indian manager,” he said.

Watch Adrian Mowat’s interview to BloombergQuint here: