Mumbai: Indian infrastructure firms will benefit from the pro-reforms policy of the newly elected Congress-lead government, while domestic shares now show more potential, JPMorgan’s domestic fund unit said.
“The attractiveness of Indian equities has significantly improved following the elections,” the firm, which managed about Rs44 billion in India assets, said in a note on Wednesday.
“Most partners in the existing coalition are more or less pro-reforms. This bodes well for what this government could deliver over the next 5 years,” the fund house said in a note.
Indian shares have surged by more than a fourth since a Congress-led coalition won an unexpectedly strong mandate in the Lok Sabha polls, raising prospects for long-pending policy decisions such as bank sector reforms and raising foreign investment in insurance and retail sectors.
The fund house said focus on infrastructure such as power, roads and ports could improve productivity and long-term growth potential of India and benefit firms engaged in operating, building and financing infrastructure.
Investment in education and agriculture will also help and the government could fund the growth without stretching the fiscal deficit in the near term if it could push through measures such as stake sales in state-run firms.
India’s consumption story also remains strong with rising disposable income and wider distribution reach of companies, said JPMorgan, which Reliance Industries, Oil and Natural Gas Corp and Larsen & Toubro among the top-5 holdings of its largest domestic fund.
“Investors will now have improved growth visibility and will likely factor that in the prices they are prepared to pay for stocks,” the firm, which also holds shares of Bharti Airtel and Bharat Heavy Electricals, said.
While analysts has started to upgrade the economic growth forecast for India, it would eventually lead to an earnings upgrade cycle for corporates.
“We would expect international investors to become more positive about Indian equities,” the firm said.
Foreign portfolio investors have poured almost $7 billion since mid-March to propel the benchmark share index up about 90% from its 2009 low hit in early March.
“While there is always a fear of disappointment when expectations are very high, in our view, the government could focus on low hanging fruit and still deliver a lot,” the asset manager said.