MUMBAI -- Indian stocks have been riding high recently, with the Bombay Stock Exchange Sensex index hitting its record high for the third straight trading day Monday. Expectations for Narendra Modi and his new government have seen the index rise more than 10% during the past month.
Also supporting the Indian stock market is a rapid decline in the country's current-account deficit.
Modi's Bharatiya Janata Party was the largest opposition before regaining power for the first time in 10 years in the recent general election. The new government, which was formed on May 26, is widely expected to ease restrictions on foreign capital in such industries as insurance and defense. Such speculation is creating buying incentives for investors.
Consumer spending and infrastructure investment, which have both been sluggish, seem to be recovering. This is helping a broad range of major companies, apart from those in the information technology services field, to trade firmly. Surges in India's major coal mining firm Coal India and other state-owned companies are drawing particular attention. Because earnings at state-run companies are largely weak, hopes are high that the new government will be able to institute effective reforms.
India was able to slash its current-account deficit, which had been sending the rupee lower and causing price surges, through such measures as raising import duties on gold. The country's current-account deficit for the year ended March 2014 was 1.7% of its gross domestic product, down sharply from its record high of 4.7% for fiscal 2012. This improvement has increased investor confidence in the stability of the country's economy, helping to lure back foreign money.
Japanese brokerage Nomura Securities predicts the Sensex index will climb to 27,200 by the end of the year. Hopes for the new government are expected to continue pushing up Indian stocks. The government's budget proposal, expected by early July, will likely determine the direction of Indian stocks for the near future.