Upbeat Indian stock markets should receive a shot in the arm from data showing a rebound in industrial activity as well as early signs of a pick-up in investment, both reinforcing confidence in Asia’s third-largest economy’s growth potential.

Output from factories, mining and electricity grew 5 per cent in February, the government said late on Friday, in the fastest annual pace since November. The rise was led by an 8.8 per cent jump in capital goods, indicating higher investment demand and improving business sentiment.

The data should warm the cockles of investors who have been bracing for a sullen earnings season. Also, after much prodding commercial banks, including State Bank of India, the country’s largest, this week started reducing their lending rates, further raising the prospects for the manufacturing sector.

“We’re advising investors to focus on the brightening outlook,” said equity salesman Manish Dalal. “Heavy commercial vehicles are seeing strong volume growth for the first time in many years and the easier loans will provide a big boost.”

According to Society of Indian Automobile Manufacturers, domestic sales of medium and heavy trucks leapt 16 per cent in the financial year ended March, well ahead of cars that grew 5 per cent and 5.3 per cent rise in utility vehicles. Demand for light commercial vehicles contracted 11.6 per cent during the period.

The subtle changes underway, especially the annual budget that aims to bolster growth and pursue fiscal prudence, got a vote of confidence this week when Moody’s upgraded the nation’s investment-grade credit rating outlook to positive. The move would help companies negotiate better financial terms when they borrow overseas.

Little surprise deep-pocketed foreign funds were enthused. Latest data shows portfolio inflows into equities from overseas investors topped $6.3 billion since the start of January, leading the table for emerging markets in the region. They have also ploughed nearly $8 billion into debt securities so far this year.

The top-30 Sensex gained 2.3 per cent last week to 28,879.38 and the 50-share Nifty climbed 2.3 per cent to 8,780.35.

Projections made by the US Department of Agriculture show that India’s economy could reach $6.6 trillion by 2030, making it the world’s third-largest after the US’s $24.8 trillion and China’s $22.2 trillion. India is currently ranked eighth, behind Japan, Germany, France, the United Kingdom and Brazil.

Investment

One of the priorities of Prime Minister Narendra Modi’s government, which took office last May, has been to remove logjams and jump-start projects by speeding up decision-making, cutting through red-tape and archaic laws as well as ushering in transparent and fairer method of allocating natural resources such as coal or other mineral ores.

Although the pace has been slow, thanks to political opposition and deep-rooted aversion to change in the bureaucracy, there are signs of a revival. Stalled investments as a percentage of GDP dropped to 6.8 per cent in the quarter ended March from 7.1 per cent in December, according to private think-tank Centre for Monitoring Indian Economy.

The “unstalling” activity was broad based across electricity and transport (which account for over half the stock of stalled projects) as well as manufacturing (which accounts for one-third of stalled projects), HSBC said.

“Necessary steps for clearing policy related logjams are either in progress or within sight (though the land acquisition bill could take longer); and this is likely to help launch a new investment cycle,” Pranjul Bhandari and Prithviraj Srinivas, economists at the global bank, said in a report.

“So far, not too many new investments have sprung up, though that could begin changing from as early as next quarter as government resumes spending.”

Earnings

Come what as it may the company results are generally expected to be below par because of a government squeeze on spending in the March quarter, lower commodity prices and poor export demand.

Cement maker ACC Ltd is expected to report on Tuesday profits dropped from a year earlier due to sluggish sales and weak prices for most of the quarter. Companies whose main markets are in the south should fare better helped by stronger prices in the region although sales volumes have dropped, according to Ankur Kulshrestha at HDFC Securities.

“We remain conservative on large cap stocks where valuations still do not factor in a weak macro demand environment. We believe cement stock valuations are even further ahead of our optimistic demand assumptions in FY16-17. Mid-caps with reasonable volume triggers are our preferred sector plays,” he wrote in a note to subscribers.

Tata Consultancy Services, the country’s top-ranked software services exporter, releases its results on Thursday as the sector battles growth deceleration and margin headwinds from cross currency shifts.

Still, the company should outgrow its peers Infosys and Wipro, and Nomura recommends a buy on the stock, with a target price of Rs2,845. The share closed at Rs2,651.95 on Friday.

Energy conglomerate Reliance Industries Ltd is scheduled to announce results on Friday, and Morgan Stanley believes the company’s stagnating profits over the past five years would change for the better in the coming years.

“With 70 per cent of $40 billion capex for 2014-18 now behind, profits are finally set for a three-year CAGR (compounded annual growth rate) of 15 per cent,” analysts Vinay Jaising, Rakesh Sethia and Amruta Pabalkar said in a report.

“We now expect earnings to grow 50 per cent over 2015-18, driven by downstream expansion: Our deep analysis adds 50 per cent to EBITDA at $70/barrel oil. The project commissioning starts in fourth quarter of 2015-16. Even on a stressed crude oil price of $40/barrel, we estimate projects to add $2.2 billion or 37 per cent to current EBITDA.”

The writer is a journalist based in India.