A growing population, strong consumption levels and a pickup in manufacturing activity have propelled India’s economy in the last year — and market watchers are actively seeking out opportunities in the South Asian powerhouse. India’s stock market too, has been booming, pushing economists to say its market capitalization could hit $60 trillion in the next two decades. The BSE Sensex index — which captures 30 well-established stocks on the Bombay Stock Exchange — is up around 10% over the last six months, while the benchmark Nifty 50 index is 12% higher. It comes after the Nifty 50 soared 20% in 2023. It is now ranked the fourth largest in the world with a valuation of over $4.6 trillion, after overtaking Hong Kong in December. “The stars have aligned for India in terms of demographics, population and market movements. Prime Minister Narendra Modi has come in with policies that have completely changed the landscape of things in India,” Neil Bahal, founder of fund management house Negen Capital, told CNBC Pro earlier this year. It comes as India’s mammoth election — with about 970 million registered voters — gets underway, running between Apr. 19 and Jun. 1. Its last election in 2019 saw Prime Minister Narendra Modi win a second term by a landslide . Peeyush Mittal, portfolio manager at Matthews Asia, agrees with the consensus that Modi will win a majority once again — which would be a “non-event” for markets. “If Mr. Modi comes back to power, political stability would continue. We are already having fairly decent monetary policy stability with the current RBI [Reserve Bank of India] with the INR [Indian Rupee] being one of the most stable currencies,” he told CNBC Pro on Apr. 17. “There is always a small possibility that it does not happen, in which case, you will certainly see a negative reaction in the market.” Mittal, who manages the $850 million Matthews India Fund , suggests that investors look to have 5% of their portfolio in Indian equities “as a rule of thumb,” in line with the nation’s growth rate and percentage it contributes to global GDP. “India, overall as a market, is more expensive versus the history. And the small- and the mid-caps are even more expensive and are at their highest premium. But large caps offer good risk reward that investors can capitalize on,” he said. Conrad Saldanha, portfolio manager at the Neuberger Berman Emerging Markets Equity Fund, agrees. He said that “the larger cap indices trailed the broader index last year due to the heavy weight of banks, consumer and IT, all of which underperformed. The smaller cap index on the other hand outperformed significantly last year with significant domestic flows driving up valuations.” Infrastructure plays One segment Mittal likes is infrastructure, with companies set to get a boost from a 10 trillion rupee ($120 billion), or 33% jump , in government capital expenditure this year. “The government has been spending almost 3.5 to 3.7% of the GDP on infrastructure; we think that’s going to go higher [and] continue to drive demand for different kinds of capital goods and equipment,” he said, naming segments like power generation and equipment manufacturing as key industries set to benefit. Among the companies on his watch are power equipment player Bharat Heavy Electricals and engineering conglomerate Thermax , amid an expected expansion in power generation capacity. “Both companies provide equipment for setting up new power plants. And I think as that ordering starts, they will benefit a lot,” Mittal said. Elsewhere, he has his sights on engine equipment manufacturer Cummins India . Investor interest in the company has been high thanks to the nearly 110% increase in its share price over the last 12 months. Mittal said he expects the company to benefit from a pick up in power demand as the country experiences more power deficits. Like Mittal, Neuberger Berman’s Saldanha is also looking keenly at this sector, naming Bharat Electronics as one of his top picks within the theme. Calling the government-owned company a “leading defense equipment” player, the portfolio manager likes that it has a strong order backlog. Promise in financials Beyond infrastructure, the portfolio managers have their eyes on financials, particularly large private-sector banks which are “the cheapest part of the market.” “Their valuations are at an all-time low, much lower than the last 10-year history,” Mittal said. “While interest rate cuts are likely going to have a negative impact on the margin for banks, we actually think private sector banks can provide fairly decent returns in next six-to-nine months because their starting valuations are fairly cheap.” He named ICICI and HDFC as his top picks. Meanwhile, Saldanha likes IndusInd Bank , which he describes as “one of India’s fastest-growing private sector banks with a strong franchise in with a strong franchise in auto/retail lending along with microfinance.” Health-care buys? Another growing segment in India is the hospital and health-care space, as the burgeoning population intensifies the nation’s need for better care facilities. For Saldanha, a key beneficiary of this theme is Apollo Hospitals . He believes the “leading hospital chain could enjoy future growth due to increasing the number of their beds, and better affordability translating into higher revenue per bed economics.” Its shares are up nearly 40% over the last 12 months. According to FactSet data, 24 of the 26 analysts covering the stock have a buy or overweight rating on it. They give it an average target price of 7,047.81 Indian rupees, or upside potential of 16.1%.
