Goldman upgrades India on Modi effect, raises Nifty target to 6900

Revising its earlier estimates and opinion on India, global investment bank Goldman Sachs has raised its investment stance on India to 'marketweight'. It has also increased its target for Nifty to 6900 for 2014-end which is nearly 10 per cent potential upside from current levels.

In a report titled "Modi-fying our View", Goldman notes optimism over political change is trumping concerns over Indian economy, given  what the bank says are expectations that the opposition Bharatiya Janata Party (BJP), led by Prime Minister candidate Narendra Modi, could prevail in parliamentary elections due by May 2014.

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"Current polls show Modi and the BJP as faring well in the five upcoming state elections, which are considered lead indicators for the general election next year. Even though the actual general election outcome is uncertain, the market could trade this favourably over the next 2 quarters, which argues for modifying our stance," the investment bank said.

The report says: "Equity investors tend to view the BJP as business-friendly, and the BJP's prime ministerial candidate Narendra Modi as an agent of change."

Explaining the bullish rationale, Goldman further said Modi has been focused on infrastructure and capital spending in the past and a BJP-led government may be beneficial for the investment demand pick-up.

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But the bank had a note of caution: the more the equity market rallies on BJP optimism, the more risk there is of a setback if the political winds change.

Apart from the political scenario, external capital account pressures have moderated, at least for now, says the bank.

At a time when Indian economy is struggling to maintain 5 per cent growth rate, there are also some early signs that investment demand has picked up in Asia's third largest economy, the bank adds.

According to the global investment bank, foreign inflows into Indian equities have remained strong this year, despite the excessive volatility and sell-off in emerging markets. FIIs have net bought $16.3 billion of equities year-to-date, with $4.6 billion inflows since September.

Goldman says it likes technology stocks including HCL Technologies and Tech Mahindra, oil and energy scripts such as Reliance Industries, Bharat Petroleum Corp Ltd and Coal India Ltd, banks including Yes Bank and IndusInd Bank and select auto and cement stocks.

The U.S. bank also included some mid-cap infrastructure stocks which are trading at inexpensive valuations such as Adani Power, NHPC Ltd, Materials stocks like Grasim Industries, and industrials stocks like Container Corp of India and Adani Ports and Special Economic Zone.

Even Nomura has raised its Sensex target for the current financial year to 22,000 from 20,000 earlier. (With Agency inputs)