Year’s 1st trillion-$ bull mkt nearing

FAITH in India’s economy and its weather is giving overseas investors the confidence to snap up equities at the quickest pace in more than a year.

Traders are shrugging off the most expensive stock valuations since 2011, sending Indian shares back toward a bull market amid forecasts for the strongest monsoon in two decades and data showing the nation growing faster than all other major economies. Inflows may continue as the benefits of Prime Minister Narendra Modi’s policies emerge in corporate earnings reports, investors, including Mark Mobius and BNP Paribas, said.

“Foreign investors are looking for growth; there aren’t many places to get it and that’s why India stands out,” Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management, said in an interview in Singapore. “Valuations aren’t cheap relative to history but we expect earnings will start to pick up gradually from depressed levels. That’s going to provide a tailwind for the market. We are overweight on India.”

Foreign investors have bought $1.5 billion of shares since April 1, the second-highest in Asia excluding Japan, after pouring $4.1 billion in March alone as global risk appetite revived and Modi took steps to boost rural demand and investment.

Modi has opened sectors such as railways and defence, helping draw record foreign direct investment in 2015, narrowed the current-account gap by curbing gold imports, quickened infrastructure building and limited the Budget deficit to a nine-year low.

The steps are beginning to take hold: 66% of the companies in the Nifty posted Marchquarter results that beat or matched estimates, versus 52% in the previous three months.

“The narrative on the Modi government will change over the next few months because the earnings cycle is turning,” Ridham Desai, head of India research at Morgan Stanley, said in an interview with Bloomberg Quint in Mumbai. “People were looking at the ear nings cycle and thinking the government hasn’t done enough work.”

Mobius, executive chairman at Templeton Emerging Markets Group, said he will add more shares of smaller companies. “Modi’s policy stance and philosophy will start feeding into the economy, accelerating the pace and that’s going to have a terrific impact,” Mobius said in an interview to Bloomberg Quint .“If you factor in thereforms, India is on the cusp of an interesting opportunity.”

Indian stocks rose to a seven-month high earlier this week as the Reserve Bank of India said its monetary policy will remain accommodative even as it left borrowing costs at a five-year low. It also cited a strong monsoon among factors that could help offset upward inflationary pressures.

The monsoon, which accounts for four-fifths of the country’s rainfall, reached the mainland in Kerala on Wednesday. The government is counting on above-normal precipitation this year to help control food prices, boost farm production and ease a drinking water shortage caused by back-toback droughts.

Some analysts are taking a cautious approach to equities. UBS Group, for one, is waiting to see stronger proof of improving expansion before raising its projections.

“Earnings are recovering and some high-frequency data points have tur ned positive, but the evidence isn’t big and broad enough,” Gautam Chhaochharia, head of research at UBS Securities India in Mumbai, said in an interview last month.

The Sensex trades at 16.5 times 12-month projected profits, the costliest since January 2011 and higher than its fiveyear mean of 14. Lofty valuations make India vulnerable to capital outflows, as happened earlier this year. Foreigners pulled a total $2.9 billion from stocks in January and February amid a global sell-off, ending the nation’s longest-ever bull market.

The recent rally, which has pushed up the Sensex to a sevenmonth high, could sputter if the buoyancy in global stocks ebbs, UBS’s Chhaochharia said.

Others say the potential for earnings and the economy outweigh the market’s elevated valuations.

“We’re are thinking of increasing exposure to the emerging world and India would be high on the list,” Shane Oliver, head of investment strategy at AMP Capital Investors, which oversees about $120 billion, said by phone from Sydney. “India’s share market is expensive compared with other emerging markets, but it has better fundamentals.”