Mumbai: The broadest advance for Indian stocks in 11 years has convinced some of the nation’s biggest money managers that the rally is far from over.

All but one of the 30 stocks in the S&P BSE Sensex have risen this year, up from 16 in 2013, as the benchmark index surged 26% for the best performance among the world’s 10 biggest markets. The last time a rally was this comprehensive, in 2003, the Sensex extended its advance for another four years.

India’s $1.5 trillion equities market, propped up by exporters since 2010, is now getting support from banks and infrastructure companies after Prime Minister Narendra Modi’s May election victory boosted confidence in the economy. The participation of stocks most reliant on domestic demand suggests the Sensex bull market is sustainable after lasting longer than any other since 1986, according to IIFL Wealth Management Ltd and ICICI Prudential Asset Management Co.

“This is one of the most broad-based rallies," S. Naren, the chief investment officer at Mumbai-based ICICI Prudential, which oversees $19 billion as India’s second-largest money manager, said in an interview on 10 September. “The outlook for the economy for the next three to five years has significantly brightened. Compared to all other countries in the world it has become much more attractive."

International investors are also bullish. Foreigners have boosted local stock holdings by $13.8 billion this year, the most among eight Asian markets tracked by Bloomberg. Franklin Templeton Investments and Goldman Sachs Asset Management this month joined Jeffrey Gundlach, the US bond fund manager at DoubleLine Capital Lp, in recommending the nation’s shares.

Banks rally

Auto makers, lenders and engineering companies are leading gains in the Sensex as investors favour stocks that benefit the most from improving economic growth. That’s a turnaround from the past three years, when investors piled into so-called defensive shares, such as drugmakers and consumer-staples producers, whose earnings can ride out economic slowdowns.

Maruti Suzuki India Ltd, the biggest carmaker, has soared 72% this year, the most on the Sensex. Axis Bank Ltd has rallied 50% for the third-best gain. Oil and Natural Gas Corp., India’s largest energy explorer, has surged 43%, headed for its best annual advance since 2009. This year’s only loser, Tata Power Co., the biggest generator outside state control, has retreated 4.4% after posting three straight quarters of losses.

Market risks

The Sensex increased 0.6% on 26 September, the most in a week, after Standard and Poor’s raised the nation’s credit rating outlook to stable from negative.

This year’s gains suggest Indian investors are ignoring the risks, according to Supreeth Shankarghal, the chief executive officer (CEO) at QF Assets in Bangalore. Shankarghal, whose call in May preceded a 13% advance in the Sensex, is now advising investors to pare their holdings.

The Sensex has gone 1,011 calendar days without a decline of at least 20% from a recent peak, four times longer than average since 1986. The rally, which sent the index to a record close on 45 days this year, has pushed its valuation to a 12% premium over the three-year average.

“The market is looking fairly valued unless we see lots of earnings upgrades or positive news on economic reforms going forward," Sanjeev Prasad, Singapore-based co-head and senior executive director at Kotak Institutional Equities, said in an interview with Bloomberg TV India on 23 September.

Modi, 64, swept to power in May after winning India’s biggest election victory in three decades on the promise to boost growth from a decade low. Voters backed Modi after he oversaw an annual economic expansion of 10% in Gujarat since 2001.

Earnings growth

Bulls say profit growth is set to accelerate as business confidence and capital spending increase. Per-share earnings for the gauge will probably climb 22% during the next 12 months, according to analyst estimates compiled by Bloomberg.

Indian companies “are entering a number of years of positive earnings revisions" as economic growth picks up, Andrew Swan, the head of Asian equities at BlackRock Inc., the world’s largest money manager, said in a 25 September interview in Hong Kong.

The $1.9 trillion economy grew 5.7% in the quarter ended June, the fastest pace in more than two years. Wholesale inflation slowed to a five-year low of 3.74% in August, while the trade gap in July narrowed the most in almost a year.

India’s economy is set to progress “very fast" and the nation will take steps to aid that growth, including easing visa rules and changing outdated laws, Modi said in an address at Madison Square Garden in New York on Sunday.

Modi, who secured $53 billion of investment pledges from China and Japan this month, is currently in the US to pitch the investment merits of India to American companies.

“I am bullish on India because India has a government which is run by the most pro-business, most pro-investment political leader in the world today," Christopher Wood, the chief equity strategist at CLSA Asia-Pacific Markets in Hong Kong, said in an interview with Bloomberg TV on 16 September. “India is the most interesting stock market in Asia for the next five years." Bloomberg