Mumbai: Stock investors are taking heart from India's efforts to re-open its economy, even as the nation continues on a trajectory to overtake the US as the country with the most coronavirus cases. The S&P BSE Sensex's has rallied almost 11 per cent since hitting a more than two-month low on September 24, the best performance among the world's national equity benchmarks.
It is less than 2 per cent away from wiping out its losses for the year. A Jefferies Financial Group Inc. model tracking economic recovery last week showed activity in India is already at 93 per cent of pre-Covid levels. The nation is set to further relax restrictions on gatherings of people and allow schools, multiplexes and entertainment parks to reopen in some areas from October 15.
"A higher-than-expected level of economic reopening, coupled with various steps from policymakers, creates an upside risk for GDP and earnings estimates," said Sameer Kalra, a strategist at Target Investing. "There is a good chance that third-quarter GDP shows a recovery and then the Sensex hits a record by December," he said.
Silver linings
The Sensex capped its best week since early June on Friday as the central bank signaled more policy easing ahead and announced a slew of liquidity steps to support the economy. In the past few days, data showing a mild improvement in some economic indicators and optimism over earnings results from a few major firms have also helped boost investor sentiment.
Maruti Suzuki India Ltd., the biggest carmaker, posted its highest monthly sales in two years in September as an end to a nationwide lockdown prompted dealerships to stock up ahead of a festive season.
"India has started to outperform EM more persistently and consistently after reaching a relative floor in March," Morgan Stanley analysts Ridham Desai and Sheela Rathi wrote in an October 9 note to clients. For this outperformance to be sustained, India needs to continue to deliver policy that lifts its potential growth in the eyes of market participants, they wrote. (Morgan Stanley is overweight on consumer discretionary, industrials and energy stocks.)
A reality check looms
India is set to announce third-quarter growth data at the end of November. That number will be closely watched after Asia's third-largest economy contracted by a record in the second quarter.
"The Indian government has pursued a gradual re-opening and the COVID-19 peak seems to be behind now," Jefferies strategists Mahesh Nandurkar and Abhinav Sinha wrote in a note last week as they upgraded the nation's financial stocks to overweight from neutral.
