India gets new stock leaders as banks top cigarettes on Modi

MUMBAI -- Indian stock investors agree with the nation’s voters on at least one thing: it is time for new leadership.

As Mr Narendra Modi’s opposition bloc secured the largest electoral victory in 30 years on May 16, the biggest gainers in India’s equity market were the companies likely to benefit most from a strengthening economy, the Bloomberg reported. That is a turnaround from the last three years, when investors favoured so-called defensive shares, such as drugmakers and consumer-staples producers.

The shift underlines the growing conviction that Mr Modi, 63, can replicate the economic success he enjoyed in Gujarat state when he takes over as prime minister of the most-populous democracy. The victory spurred Macquarie Capital Securities India’s Rakesh Arora, the most accurate forecaster of the S&P BSE Sensex in 2013, to advise switching into State Bank of India from cigarette-maker ITC.

Mr Arora raised his overweight rating on financial-services companies and industrials, while paring technology and drugmakers to underweight. He raised his Sensex target for the fiscal year ending March 2015 by 15 per cent to 28,000.

Aberdeen Asset Management favours Indian producers of raw materials, including cement, said Mr Adrian Lim, one of the firm’s Singapore-based money managers.

“They are starting to pick up on the back of a cyclical recovery and are likely to be notable beneficiaries of an investment revival,” said Mr Lim. He didn’t name any companies.

CLSA Asia-Pacific Markets made Jaiprakash Associates, a builder of power plants and highways, one of its top regional picks.

“We will be in a bull run for next three to five years,” said Mr Shishir Bajpai, a director at IIFL Wealth Management. “We will look closely at shares of banks, utilities and industrials as they are likely to perform better.”

The value of Indian equities has climbed by US$371 billion (S$463.8 billion), or 37 per cent, since the Bharatiya Janata Party named Mr Modi as its candidate for prime minister on Sept 13. Foreigners bought US$14.4 billion of shares during the period amid speculation Mr Modi will do more than the outgoing Congress Party-led alliance to revive economic growth from near the weakest pace in a decade.

The sector rotation continued for a second day as banks, power companies and metal producers advanced, while software exporters and health-care providers tumbled. State Bank rallied to a three-year high and Jaiprakash surged the most in five years. The Sensex climbed 1 per cent to a record 24,363.05 at the close and the rupee touched an 11-month high.

ITC fell the most since September and the S&P BSE India Healthcare Index slid the most in five years. Tata Consultancy Services, the best performer on the Sensex in 2013, dropped to a five-month low.