| MUMBAI, March 17
MUMBAI, March 17 India's broader NSE stock index
hit a record high on Friday, as bets on improving
earnings and additional economic reforms are fuelling a rally
that investors believe will lead equity returns to outpace debt
for the first time in two years.
The NSE index, or Nifty, rose as much as 0.7 percent to an
all-time high of 9,218.4, marking the third time this week when
it hit a record peak, after results over the weekend showed that
Prime Minister Narendra Modi's Bharatiya Janata Party won big in
elections in the key state of Uttar Pradesh.
Investors believe the win boosts Modi's re-election
prospects in 2019 and will encourage him to advance his
ambitious economic reform agenda.
It also comes as analysts are growing confident of a
recovery in earnings because of stronger economic growth:
Macquarie estimates earnings-per-share for the NSE could surge
16 percent in the year starting in April, compared with a 5
percent rise in the previous fiscal year and 4 percent in
Though analysts warn near-term corrections are inevitable
given that shares have turned more expensive, they believe that
improving earnings and economic reforms should easily see
equities outperform bonds over the next few years.
"Whether equities will outperform debt over the next three
years, that goes without saying, without any doubt," said Jayesh
Shroff, co-founder of investment advisory Cask Capital.
A move to equities from bonds would mark a contrast over
2015 and 2016, when debt markets rallied after aggressive
central bank rate cuts, far outperforming shares.
But the outlook for debt has soured after the Reserve Bank
of India unexpectedly changed its policy stance to "neutral"
from "accommodative" on Feb. 8, sending the benchmark 10-year
bond yield up as much as 51 basis points to 6.942
percent. It has since eased to 6.85 percent.
By contrast, the Nifty has gained about 12 percent this
year, making it the second-best performing index in Asia.
That has pushed up price-to-earnings in the NSE to 19.85
over the next 12 months, compared with the five-year historic
average of 17.8, but fund managers still believe equities will
prove a better bet over the medium term.
This optimism has also been underpinned by strong retail
investments. Domestic institutional investments, which best
captures retail purchases, hit a record high of 1.17 trillion
rupees ($17.90 billion) last year and 1.86 billion rupees so far
"With interest rates unlikely to fall further, fixed deposit
rates no longer lucrative and falling gold and real estate
prices, equities are the most attractive asset class for
investments in the next three years," said Sunil Sharma, chief
investment officer, Sanctum Wealth Management.
($1 = 65.3575 Indian rupees)
(Editing by Rafael Nam and Subhranshu Sahu)