Improving domestic macros, supported by a sharp plunge in crude oil prices, have fulled interest in the Indian equity markets, which is reflected in the multiple peaks scaled by the 30-share Sensex this year.
On Wednesday, the benchmark index reached another milestone, closing above 28,000 for the first time. The Sensex ended the session at 28,008.9, up 98.84 points, or 0.35%.
At a time when global commodity prices are cooling off, India provides a better growth potential than its emerging market peers, making it the preferred choice of foreign investors.
Global investment bank Macquarie draws a parallel between India and Indonesia, with both countries having seen a regime change in 2014 and enjoying a favourable structural growth potential. Investor expectations for reform delivery are, however, higher from PM Narendra Modi than Indonesian president Jokowi, it says.
“In India, the conclusive election outcome, assuring political stability, and Modi’s good track record have raised investor expectations regarding the government’s ability to undertake much-needed structural reforms,” says Macquarie.
The contours of market rally over the last few months indicate that the Street is keeping a close watch on the pace of reforms undertaken by the BJP government, and that a stronger reform directive may be required for higher FII purchases.
Between late March and early June, the Senex mopped up gains of 3,000 points in just 45 trading sessions on pre- and post-election euphoria.
However, after the Union Budget was presented in July, the rally fizzled out, with investors awaiting clarity on the policy framework.
While the market alpped up the government decisions to deregulate diesel prices and carry out fresh auctions of coal blocks, experts have stressed on the importance of sustained economic reforms.
According to Kotak Institutional Equities, India will gain from the emerging global scenario if it continues to pursue the right policy mix to improve its macros.
Deutchse Bank, which recently set a Sensex target of 29,000 for March 2015, expects aggressive reform-oriented policies to emerge as a core catalyst for markets.