Thursday, November 7, 2013
A broker speaks on his mobile phone at the Bombay Stock Exchange in Mumbai, India. Photographer: Dhiraj Singh/Bloomberg
Global investment banks are recommending buying Indian assets on optimism a leadership change at the central bank will be followed by a new government that businesses favor next year.
Goldman Sachs Group Inc. prefers stocks, saying investors are hopeful the main opposition Bharatiya Janata Party under Gujarat state Chief Minister Narendra Modi's leadership will win national elections, as Prime Minister Manmohan Singh takes the blame for the slowest growth in a decade. Credit Suisse Group AG advises buying the rupee, betting Reserve Bank of India Governor Raghuram Rajan will curb inflation, while Brown Brothers Harriman & Co. is positive on sovereign debt.
"We are very comfortable with Rajan and his policies," Ilan Solot, a strategist at Brown Brothers in London, said in a Nov. 5 telephone interview. "He has gained a lot of credibility that will help fixed-income markets, and gradually make investors more comfortable in buying Indian debt."
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Sovereign bonds returned 2.5 percent in October, the best performance since April 2009, HSBC Holdings Plc indexes show, as Rajan's policies revived investor confidence and spurred a 1.8 percent gain in the rupee. The nation's main stock indexes surged the most in Asia. Modi, 63, has been praised by businessmen including billionaire Mukesh Ambani, India's richest man, and Tata Group's former chairman Ratan Tata.
"Equity investors tend to view the BJP as business-friendly, and the BJP's prime ministerial candidate Narendra Modi as an agent of change," Goldman analysts, including Hong Kong-based Timothy Moe, wrote in a Nov. 5 report. "Politics are trumping economics."
India's credit rating may be cut to junk next year unless elections due by May lead to a government capable of reviving growth, Standard & Poor's said in a statement yesterday.
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Modi, credited with achieving higher growth than the national average in his home state, arouses strong emotions in the world's largest democracy.
To followers, he's a cult figure who dragged Gujarat from the ashes of anti-Muslim riots in 2002, wooing businesses and cutting red tape and corruption. To opponents, he's an autocrat who failed to control the attacks by Hindu mobs or show enough remorse over the killings of more than 1,000 people. The U.S. refused him a visa over his alleged role in the violence.
Modi has denied any wrongdoing and a Supreme Court-appointed panel investigating one documented incident found no evidence that he took decisions to prevent assistance from reaching those being attacked.
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The BJP will win 162 of 545 Parliament seats in general elections due by May, and the Congress 102, according to a poll published last month by C-voter polling agency, India TV and Times Now television. About 42 percent of urban voters are undecided about whom to vote for, a survey by Google India, conducted in July and August and published Oct. 8, showed.
Modi was the most-searched politician on the Internet in the last six months, followed by Rahul Gandhi, vice president of ruling Congress Party, according to the Google survey.
Goldman on Nov. 5 boosted its stance on Indian stocks to marketweight from underweight. The U.S. bank said in a separate note last month that a BJP-led government may increase investment, while Singh's ruling coalition will focus on boosting rural consumption.
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India's financial markets ended a rout after Rajan, upon taking office as RBI governor in September, eased funding curbs to support growth in Asia's third-largest economy and offered concessional swaps for dollars raised by banks -- a move Goldman says has helped soothe concerns about funding the nation's external obligations. He also raised the benchmark repurchase rate twice in two months and vowed to sustain confidence in the rupee by keeping inflation low.
The rupee has rebounded 10.3 percent from a record low of 68.8450 per dollar reached Aug. 28 as the Federal Reserve delayed tapering stimulus that's buoyed emerging markets. The 10-year benchmark bond yield has dropped 39 basis points, or 0.39 percentage point, from a five-year high of 9.24 percent on Aug. 19, while the S&P BSE Sensex index of shares rose to a record during a special trading session on Nov. 3.
The benchmark equity gauge and the broader Nifty Index last month climbed 9 percent and 10 percent, respectively, the most in Asia.
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