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Two leading foreign brokerages have projected a bright outlook for Indian equity markets amid heightened prospects of significant gains in the run-up to the general elections early next year. Credit Suisse has said India, MSCI China and South Korea are its biggest 'overweights' while CLSA Asia-Pacific Markets has said it is adding 1 per cent to India's rating in its Asia Pacific excluding-Japan Relative Return portfolio.
The upgrades come on the heels of Goldman Sachs upgrading Indian markets earlier this month on hopes of a Narendra Modi-led BJP forming the next government. The Goldman report had drawn criticism from Union minister Anand Sharma.
CLSA has said the coming elections are potential catalysts for a higher India weightage, according to news agency Bloomberg. Before the general elections in April 2014, state assembly elections will be held in Chhattisgarh, Rajasthan, Madhya Pradesh and Delhi. Analysts say the markets will watch the outcome of these state elections to gauge the response to Narendra Modi's elevation as the BJP's prime ministerial candidate.
"We believe Korea (doubling in developed market GDP growth), MSCI China (plenum reforms) and India (elections) could potentially be the leaders of the next cycle," said Credit Suisse's equity strategists led by Sakthi Siva in a report. The elections could act as a catalyst to boost nominal gross domestic product (GDP) growth and return on equity (RoE), the strategists said.
Goldman Sachs, in its recent note titled "Modi-fying our view: Raise India to Marketweight", had said a BJP-led government could be beneficial for a pick-up in investment demand. Sharma had accused the brokerage of political interference.
Soon after that report, CLSA's chief equity strategist Christopher Wood had reiterated that the stock market could see a 'dramatic rally' if the 'BJP candidate' could achieve a visible majority, a prospect thought to be inconceivable a year earlier.
Foreign institutional investors have net bought shares worth $17.2 billion so far this year, the highest after Japan among leading Asian markets. Benchmark stock indices have gained close to five per cent so far this year.
Credit Suisse said politics and developments around the US Fed's monetary stimulus taper would drive the market in the first half of 2014. "We believe both will have limited impact on fundamentals, but the market sentiment will still get affected," said the Credit Suisse strategists.
FOREIGN BROKERAGES' INDIA VIEW
* Goldman Sachs: Upgraded to 'marketweight'
* Nomura: March-end Sensex target raised to 22,000
* Citi: Cautious, with Dec Sensex target of 18,900
* Credit Suisse: India among top three 'overweights' in region
* CLSA: 1% added to India 'overweight' in Asia Pacific ex-Japan Relative Return portfolio
