Sure signs of economic revival and political events make Indian stocks desirable

The recent spurt in India's equity markets following the general elections reflects investors' desire to increase their exposure to Indian stocks given that the political uncertainty has been dispelled.

While the case for investing in India had remained strong in terms of medium- to long-term economic and corporate earnings growth, many investors were waiting on the sidelines anxious about the elections. As the euphoria over the outcome of these elections wanes, policymaking, foreign institutional investor (FII) inflows and global conditions are likely to influence the direction of India's markets.

On the economic front, India has witnessed initial signs of improving demand in sectors such as autos and cement.

As the monetary and fiscal stimulus measures percolate through the economy, further signs of revival are expected to show through. However, growth in export and export-related sectors is likely to remain muted.

The forecast of near-normal monsoon for 2009, along with various rural initiatives, should benefit the rural economy.

The Indian economy remains one of the strongest in the world and is likely to be one of the fastest-growing economies this year as well as over the medium to long term, due to its lower dependence on exports and major services component. High economic growth could boost demand for goods and services, and high-quality Indian companies could benefit.

We have remained fully invested during the past year and used the recent declines to increase exposure to attractively valued companies. Our investment focus continues to be on fundamentally strong companies that have the potential to take advantage of the opportunities arising from India's long-term growth.

- The writer is the chief investment officer for equities at Franklin Templeton Investments, India.