3 Indian Election Stock Picks

The NDA alliance has won a resounding victory in the recently concluded Indian elections, outperforming most exit poll projections. Barring one, none of these surveys had predicted that voters would provide a majority mandate to a single party for the first time in thirty years. The implications of this development for the Indian economy will be far reaching and require detailed analysis.

Markets Surge

By early morning, the Sensex had moved beyond the 25000 mark after trends indicated that the BJP was on track to win a clear majority. The 30-share index ultimately ended lower following profit booking. At around 24,000, it was still a record close.

The NSE Nifty followed suit, crossed the 7,500 mark and touching an intra-day high. The index lost most of its early gains to close at around 7,200. Profit booking was the culprit in this case as well.

Among sectoral indices, the BSE realty index increased the most, gaining 5.97%. Coming in second was the Banking Index, which gained 4.39% while the PSU Index moved up 3.6%.

ADRs Close Mixed

ADRs ended mixed on Friday. Among the gainers was ICICI Bank Ltd. (IBN) which moved up 10.01% to $51.01 per ADR. Close competitor HDFC Bank Ltd. (HDB) gained 6.11% to end at $46.18. Tata Motors Ltd. (TTM) also gained, by 2.7% to close at $40.68.

However, some big names featured among the losers. Dr. Reddy's Laboratories Ltd. (RDY) shed 0.25% to close at $40.66. Meanwhile, tech majors Infosys Ltd. (INFY) and Wipro Ltd. (WIT) lost 1.04% and 1.19% to close at $53.20 and $11.60, respectively.

Modi’s Method

The Congress-led UPA regime, which lost the election, was hampered by two major problems. Subsidies ballooned and industry lost its momentum. Consequently, growth floundered, declining below 5% from the pre-crisis level of 8%. The government also faced a disruptive opposition which resisted major reforms, such as the entry of multi-brand retail. Inflation continues to rise, presenting a daunting challenge for the new government.

The success of the BJP, which has managed to garner a clear majority for itself, is being solely attributed to its prime ministerial candidate Narendra Modi. A long-term chief minister of the state of Gujarat, Mr Modi has distinguished himself in several areas.

His rural electrification program is a case in point, which has not only improved the quality of life for many but also significantly reduced the power subsidy. The fact that this has been achieved through close association with private enterprise is equally significant.

The Road Ahead

One of Mr. Modi’s frequent slogans has been: “Minimum government, maximum governance.” Developments in the national capital indicate that an assertive Prime Minister’s Office would be able to increase the pace of decision making, significantly reducing red tape. A renewed emphasis on manufacturing, which has slipped in recent times, also augurs well for the economy.

Below we present three stocks which are poised to benefit from the new government’s policies, each of which also has a good Zacks Rank. The first two are the country’s largest private banks and the third, its largest automobile manufacturer.

ICICI Bank Ltd.

ICICI Bank Ltd. is one of the major private sector banks in India, with total assets of about INR5,741.26 billion ($92.89 billion) as of Dec 31, 2013. The bank had a network of 3,588 branches and 11,215 ATMs as of the same date. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers. The company’s subsidiaries operate in the areas of investment banking, life and non-life insurance, venture capital and asset management.

ICICI Bank Ltd. holds a Zacks Rank #1 (Strong Buy) and has a forward price-to-earnings ratio (P/E) for the current financial year (F1) is 15.84.

HDFC Bank Ltd.

HDFC Bank Ltd. is one of the largest banks in India, with a retail network of 3,336 branches and 11,473 ATMs in 2,022 cities as of Dec 31, 2013. The bank enjoys favorable brand equity among Indian consumers and depositors, which enables it to keep its borrowing costs low. It provides a wide range of banking services covering commercial and investment banking on the wholesale side and transactional/branch banking on the retail side.

Currently the company holds a Zacks Rank #3 (Hold) and has a P/E (F1) of 20.62.

Tata Motors Limited

Tata Motors is the largest automobile company in India. It is also the fifth largest truck manufacturer and the fourth largest bus manufacturer in the world. It also provides automotive solutions. Commercial and passenger vehicles are also sold in Europe, Africa, the Middle East, South East Asia, South Asia, Russia and South America.

Apart from a Zacks Rank #3 (Hold), Tata Motors has a P/E (F1) of 9.47.

The new government is expected to increase the pace of decision-making and initiate key reforms. This is why these stocks would make good additions to your portfolio in the post-poll scenario.

Read the Full Research Report on RDY
Read the Full Research Report on IBN
Read the Full Research Report on INFY
Read the Full Research Report on WIT
Read the Full Research Report on HDB
Read the Full Research Report on TTM


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