After staging impressive rallies in the
run-up to elections, Indian stocks and the rupee have scope for further
upside, said a report by Goldman Sachs. "The general elections in India
resulted in an unequivocal verdict in favour of the opposition BJP, and
there is substantial momentum behind the prospects for economic reform.
"Expectations of a market-friendly outcome have seen Indian equities,
the INR and INR swaps rally - and the key question now is whether these
moves can extend. Our general answer to that question is a qualified
'yes'...." Goldman Sachs said in a research note. Indian equities,
rupee and rupee-swaps have all seen rallies of varying intensity in
anticipation of a reformist government and post elections these moves
are likely to extend further, it said.
Though the large Parliamentary majority will allow the new government to undertake previously stalled reforms, transplanting the model of effective administration from Gujarat to the national level, where there are many more disparate constituencies and vested interests, is likely to take some time, the report said.
Year-to-date, India has been one of the best-performing emerging equity markets. The 50-share index NSE Nifty is up almost 15 per cent in the local currency, with about half of that return coming in the last couple of weeks as optimism around the election results built. After staging impressive rallies in the run-up to election, the BSE benchmark Sensex briefly breached the crucial 25,000-mark on May 16, the day votes were counted. The index in its last trade had recorded its historic closing high of 24,693.35. On rupee, the report said, it is likely to remain "steady" as positive policy dynamics and capital inflows push the currency stronger, but the RBI is likely to resist too much spot appreciation. The local currency had strengthened to its 11-month high of 58-level last week. Goldman Sachs Asian Equity Strategists have maintained their overweight stance on India within the Asia-Pacific (ex- Japan) region and have raised their 12-month Nifty target to 8,300, implying about 15 per cent upside from current levels.
According to Goldman Sachs, the rupee is likely to be around 58.5/USD in the next three months, 61/USD in next six months and 63 in next 12 months time. The report further noted a clear mandate for the BJP has rekindled hope for structural reforms and better investment climate and the country's growth is likely to accelerate to 6.5 per cent in FY16.
"The unfolding scenario also points to easing of prices and lowering of interest rates, the two major challenges that the Indian economy had been facing for some years now," Assocham President Rana Kapoor said.
However, the emerging situation will pose a new challenge to the Reserve Bank to deal as it will have to balance the rupee rate and inflation from the increased liquidity into the system.
The new Finance Minister and the RBI, thus, will have to be on the same page in dealing with this scenario which will see strengthening of Rupee and a further improvement on the current account balance, Assocham said.
In the current fiscal, the FII investment would remain more than the FDI inflows, Assocham said. The expectations are that FII investment in both debt and equity could exceed USD 35 billion while the FDI money could be above USD 25 billion. "If the Modi government is able to take some reforms- friendly measures along with taming inflation and earning goodwill of the people, the FDI will do a fast catch-up with the FIIs. The euphoria must be taken advantage of and things will move on from there," Kapoor said. Significantly, India will continue to outpace all other emerging economies in terms of FII inflows which would not be affected much by the tapering of the Quantitative Easing by the US Federal Reserve, the study found. Besides, as the new government goes about removing obstacles in investment, FDI is likely to pick up again in the key infrastructure areas of ports, airports, roads and energy, the study said.
Though the large Parliamentary majority will allow the new government to undertake previously stalled reforms, transplanting the model of effective administration from Gujarat to the national level, where there are many more disparate constituencies and vested interests, is likely to take some time, the report said.
Year-to-date, India has been one of the best-performing emerging equity markets. The 50-share index NSE Nifty is up almost 15 per cent in the local currency, with about half of that return coming in the last couple of weeks as optimism around the election results built. After staging impressive rallies in the run-up to election, the BSE benchmark Sensex briefly breached the crucial 25,000-mark on May 16, the day votes were counted. The index in its last trade had recorded its historic closing high of 24,693.35. On rupee, the report said, it is likely to remain "steady" as positive policy dynamics and capital inflows push the currency stronger, but the RBI is likely to resist too much spot appreciation. The local currency had strengthened to its 11-month high of 58-level last week. Goldman Sachs Asian Equity Strategists have maintained their overweight stance on India within the Asia-Pacific (ex- Japan) region and have raised their 12-month Nifty target to 8,300, implying about 15 per cent upside from current levels.
According to Goldman Sachs, the rupee is likely to be around 58.5/USD in the next three months, 61/USD in next six months and 63 in next 12 months time. The report further noted a clear mandate for the BJP has rekindled hope for structural reforms and better investment climate and the country's growth is likely to accelerate to 6.5 per cent in FY16.
FOREIGN INVESTORS TO POUR 60 BILLION DOLLARS IN INDIA EQUITIES
Foreign investment inflows are estimated to more than double to USD 60 billion level this fiscal as overseas investors repose confidence in Narendra Modi-led government that is expected to unleash big-bang reforms to reboot the economy, says an Assocham study. "Riding on huge expectations from the incoming Modi government, global investors are gung ho on the Indian economy which is expected to witness over 100 per cent increase in foreign investment inflows - both FDI and FIIs - to above USD 60 billion in the current financial year as against USD 29 billion during 2013-14," the study projected. The net foreign investment inflows, led by aggressive foreign institutional investors (FIIs) in the Indian equity and debt markets in 2014-15, are expected to even overtake the figure of USD 46.17 billion during fiscal 2012-13, one of the best years for overseas investment inflows, it estimated."The unfolding scenario also points to easing of prices and lowering of interest rates, the two major challenges that the Indian economy had been facing for some years now," Assocham President Rana Kapoor said.
However, the emerging situation will pose a new challenge to the Reserve Bank to deal as it will have to balance the rupee rate and inflation from the increased liquidity into the system.
The new Finance Minister and the RBI, thus, will have to be on the same page in dealing with this scenario which will see strengthening of Rupee and a further improvement on the current account balance, Assocham said.
In the current fiscal, the FII investment would remain more than the FDI inflows, Assocham said. The expectations are that FII investment in both debt and equity could exceed USD 35 billion while the FDI money could be above USD 25 billion. "If the Modi government is able to take some reforms- friendly measures along with taming inflation and earning goodwill of the people, the FDI will do a fast catch-up with the FIIs. The euphoria must be taken advantage of and things will move on from there," Kapoor said. Significantly, India will continue to outpace all other emerging economies in terms of FII inflows which would not be affected much by the tapering of the Quantitative Easing by the US Federal Reserve, the study found. Besides, as the new government goes about removing obstacles in investment, FDI is likely to pick up again in the key infrastructure areas of ports, airports, roads and energy, the study said.
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