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Indian equities chalk best yearly performance since 2014

Investors bet on GST, banks' recapitalization

MUMBAI (NewsRise) -- Indian shares posted their best yearly performance since 2014 as investors looked past an economic slowdown, focusing instead on the rollout of a nationwide Goods and Services Tax and the move to recapitalize state-run banks. Moody's Investors Service upgrading India's credit rating for the first time in 13 years also buoyed market participants. The benchmark BSE Sensex chalked an annual advance of about 28% in 2017, closing at 34,056.83. The broader Nifty 50 Index climbed 28.6% to end at 10,530.70. On Friday, Sensex ended up 0.6% and the Nifty 50 advanced 0.5%. The year's rally in Indian markets was helped by positive global sentiment as outlook for world economic growth was revised higher and the U.S. progressed toward approving a drastic cut in corporate taxes. Monetary policy in developed nations continued to remain supportive despite growth picking up, as inflation expectations remained low. While the U.S. Federal Reserve continued its path toward policy normalization, the pace of rate increases was measured and didn't lead to a disruption in global financial markets.

The S&P 500 Index is up about 20% this year and the Asia300 Index of companies outside Japan climbed 37%. Hong Kong's Hang Seng Index was the top performing major Asian index, surging 36%.

Indian equities weathered a difficult year for the domestic economy as last year's ban on high-denomination currencies continued to disrupt output. India's economic growth slowed to its lowest in more than three-years during the April-June quarter. The uncertainty ahead of the rollout of the Goods and Services Tax too contributed to the slowdown.

In July, India rolled out the much-awaited GST, a landmark reform that simplified indirect taxes across the country. The implementation of the new taxation is expected to raise the country's long-term potential output and reduce the cost of doing business.

The GST rollout and demonetization undermined near-term growth in Asia's third-largest economy. But analysts have said that the nation's progress toward a less cash-reliant economy and less complicated tax structure augur well for future.

"We remain bullish on India's macroeconomic outlook," Nomura said in a note. "The economy is on the cusp of a cyclical recovery and the government has continued to implement structural reforms and prudent macro policies, the tangible benefits of which may be harder to pinpoint right now, but over time will be positive for growth."

Last month, Moody's upgraded India's credit rating, citing progress on economic and institutional reforms, referring particularly to the GST and the demonetization.

The rating agency said New Delhi's measures to address the overhang of non-performing loans in the banking system too will help in fostering sustainable growth. In October, the government said it will pump in $32.4 billion to capitalize state-run lenders in a bid to increase the availability of credit and stimulate private investment.

On the political front, Prime Minister Narendra Modi's Bharatiya Janata Party emerged victorious in important assembly elections in the states of Uttar Pradesh and Gujarat, further boosting investor confidence.

Reliance Industries was among the top performers, rallying about 71% this year. The conglomerate's best yearly showing since 2009 came amid positive earnings surprise from its petrochemical division and increasingly confident outlook on its telecom unit. The consolidation in India's telecom market and the recent tariff increase by Reliance Jio Infocomm are expected to drive subscriber acquisition and average revenues per user for the company.

Reliance Jio's move to raise its tariff suggested that the internecine price war in the industry could be over soon. That contributed to a 73.3% rally in Bharti Airtel and 46.3% advance in Idea Cellular. Earlier this year, Vodafone said it will merge its Indian operations with Idea.

Maruti Suzuki India, the nation's largest carmaker, was among the best performers on the 30-stock Sensex. Expectations of rising rural sales following a normal monsoon and better-than-expected earnings helped the stock jump about 83% in 2017. Tata Steel advanced the most in 2017, gaining 87.3%, and aluminium and copper producer Hindalco Industries added 76.5%. Vedanta added 52.5%. The metal producers gained as a weaker dollar, China's production curbs, and improving global growth outlook boosted global commodity prices.

The recapitalization of state-run lenders helped a late-year rally in banking stocks. State Bank of India added 24%, Punjab National Bank climbed 48.4%, and Canara Bank advanced 41.2%.

Sun Pharmaceutical Industries posted yearly losses of 9.5%, while Dr. Reddy's Laboratories lost 21% as drug makers underperformed for the second consecutive year. Moderating growth amid rising competition in the U.S. and continued regulatory overhang hurt the sector in 2017.

--Nimesh Vora and Vidyut Deshpande

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