Bloomberg
For India’s most accurate equity forecaster, the best monsoon since 2007 is a reason to be bullish on the country’s stocks for a third successive year.
Rakesh Arora, the head of research at Macquarie Group in Mumbai, says the S&P BSE Sensex will advance 13% in 2014. The average of eight analysts’ predictions compiled by Bloomberg is for a 9.5% gain. It climbed 9.1% this year through December 27 after rising 26% in 2012.
Indian equities have beaten stocks in Brazil, Russia and China in 2013 as the economy of the world’s second-most populous country rebounded from the slowest growth in four years. Monsoon rains that are a boost to farmers are adding to a recovery in investor confidence fuelled by a jump in exports, speculation next year’s national elections will usher in a more stable government and a halt to interest-rate increases.
“The optimism comes from the fact that GDP estimates are being upgraded because exports are picking up and good monsoon rains will translate into better rural demand,” Arora, 44, said in a December 19 phone interview. “Three months ago, everyone was cutting GDP to below 4%.”
India received 37 inches of rain in the annual wet season that extends from June 1 to September 30, the most in six years, according to the nation’s weather office. Food-grain output in the 2013-2014 season may climb to a record, Agriculture Minister Sharad Pawar said in September.
Bigger harvests and the government’s $77bn funding for rural areas have given the inhabitants of India’s 600,000 villages money to spend on goods other than daily staples, making them a target for consumer companies such as Nestle India. The Congress-led alliance will “fast-track” 255 projects worth Rs10tn ($162bn), Cabinet Secretary Ajit Kumar Seth said in New Delhi on December 20.
“A good monsoon, higher exports and the government clearing some big infrastructure projects will push growth up,” Gaurav Mehta, a strategist at Ambit Capital Pvt., said by phone from Mumbai. “There’s still a big portion of the economy that is healthy.” Mehta said Ambit is “reviewing” its Sensex target of 21,000 for the financial year ending March 2014.
The 30-member Sensex slipped 0.2% to 21,143.01 yesterday. Arora’s October prediction for the gauge to reach 20,700 by year-end matched a forecast by IDFC Securities, making them the most accurate of the 11 analysts surveyed by Bloomberg that month. Arora expects the index to climb to 23,900 by end of next year. IDFC Securities didn’t participate in the survey for 2014.