Modi magic seen lasting in Indian markets amid foreign investment flows

Indian Prime Minister Narendra Modi’s election-win magic looks to be casting a spell on the stock market.The S&P BSE Sensex index will climb to 32,000 by the end of December, up more than 8% 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 drug makers are among their top picks on optimism the result will open the gates to foreign cash.“India will get $15-$20bn 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.”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 dropped 0.1% at the close yesterday, 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% versus an average 40% and a peak of 50% over the past two years, Goldman Sachs Group 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 $1.56bn of Indian shares in February, ending a four-month selloff. They have already purchased another $2.43bn in March, with $867.6mn of it coming in just two days following the state- election results.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’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.The respondents in the survey are from Equinomics Research & Advisory, IDBI Capital Market Services, Motilal Oswal Asset Management Co, Religare Capital Markets, India Infoline, Guiness Securities, OmniScience Capital and Kotak Mahindra Bank.