India Upgraded to “Overweight” as Nifty Projected to Rise

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MUMBAI – Goldman Sachs upgraded India’s rating from ‘market weight’ to ‘overweight’ in a report last week on expectations that the Nifty will rise 17 percent to 7,600 within a year.

Reacting to these projections, the 30-share Bombay Stock Exchange Sensex and 50-share Nifty hit record highs yesterday at 22,000 and 5,700, respectively. This year, the Nifty has climbed 3 percent in spite of market fears surrounding the Chaori default in China and instability in Crimea.

“The external balance sheet looks better, domestic fundamentals should start to improve and the upcoming parliamentary elections in April could be an important catalyst for structural reforms and a pickup in the investment cycle,” the report reads.

“The upcoming parliamentary elections could have an important bearing on policy choices and the progress of structural reforms. Adoption of a more decisive and/or pro-growth policies could help boost investment activity and provide impetus to the overall growth cycle, in our view,” it adds.

This is not the first time Goldman Sachs has justified India’s upgrade on election prospects.

Last November, Anand Sharma, India’s Minister of Commerce and Industry, accused Goldman Sachs of possessing an “eagerness to mess around with India’s domestic politics” after the firm upgraded its assessment of India’s economy on the expectation that Narendra Modi’s BJP would be victorious in the upcoming general elections in a note titled ‘Modi-fying our view: raise India to Marketweight.’

“History suggests that equities in both India and Indonesia tend to have a cyclical rally leading up to elections, partly supported by favorable foreign inflows. Our analysis of market moves, valuation changes and FII flows around previous elections suggests India may have more room for a pre-election rally than Indonesia,” the report states.

The report additionally listed several risk factors, including renewed concerns about emerging markets that may impact equities, the potential for instability to arise during elections that would trigger capital outflows and slower-than-expected growth later in the year.

Data by Bloomberg indicates that investors have placed US$1.6 billion in domestic stocks and purchased US$6.3 billion in local debt this year alone, and polls show the BJP poised to dominate in upcoming national elections.

Narendra Modi, the BJP’s official prime ministerial candidate and chief minister of Gujarat state, is considered by many to be a very controversial political figure in India. Originally known for leading Gujarat during the 2002 riots, Modi has sought to soften his Hindu nationalist rhetoric in recent months to broaden his appeal to Muslims and other Indians frustrated by the current economic climate. Presiding over the strongest state economy in India during his governorship, Modi has campaigned for the BJP on a platform of economic growth and development, and is notably popular among India’s business elite.

If the BJP is victorious in this year’s upcoming elections, India may see liberalized FDI caps and other positive policy moves designed to encourage foreign investment into the country. These changes could spell strong returns for India’s equity sector and draw greater foreign participation in the country’s continued development.

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