Anticipation over brighter biz prospects main reason for surge, say analysts

The pro-industry image of the BJP’s prime ministerial candidate Narendra Modi seems to have gone well with stock investors, especially those of Gujarat-based companies.

Ever since the BJP announced Modi as its PM candidate for the 2014 Lok Sabha elections on September 13, 2013, the stock prices of companies having roots in Gujarat have turned bullish with some even outperforming the key indices.

The S&P BSE Sensex gained 13 per cent and the S&P BSE Midcap index about 28 per cent since September 13, 2013 till date, which marked the beginning of the nine-phase Lok Sabha elections.

State PSUs join bandwagon

Ahmedabad-based firms, Arvind Ltd (up 115 per cent), Cadila Pharmaceuticals (up 55 per cent) and Torrent Power (up 32 per cent) are among a few players that have shown attractive gains.

Gujarat State PSUs have also yielded healthy returns for investors. Mining major Gujarat Mineral Development Corporation (up 51 per cent), Gujarat Gas Company (up 37 per cent), Gujarat State Petronet Ltd (up 37 per cent) and Gujarat Alkalies and Chemicals Ltd (up 28 per cent) were leading PSUs to post heavy gains during the given period.

Among the private firms, Adani Group’s flagship firm Adani Enterprises witnessed one of the sharpest gains of 166 per cent since the announcement of Modi’s candidature for PM post. Other Adani Group firms, Adani Power (up 57 per cent) and Adani Ports and Special Economic Zone (up 38 per cent) also registered handsome gains.

According to analysts, the sharp gains in the stock prices of companies with base in Gujarat is mainly in anticipation of business prospects getting brighter upon Modi assuming the PM’s office.

“Companies in Gujarat have experience of dealing with the Modi administration at the State level.

“Hence, at the national level it would be easier for them with the new Government under Modi at the Centre,” said the research head of a Mumbai-based broking house requesting not to be named.

Fuelling the sentiment, at least two leading multinational brokerages, including Japan’s Nomura and US-based Goldman Sachs, have expressed optimism about BJP forming the next Government with Modi as PM.

Madhumita Ghosh, research head of Delhi-based brokerage Equity Augment Enterprises, said, “There is an obvious jump in mid-cap stocks as inflation and rupee are turning in favour. However, sharp jump in Adani shares and other Gujarat-based companies is an obvious outcome of the State Chief Minister heading to be the next Prime Minster of the country.”

Notably, some of the announcements in BJP’s election manifesto indicate good prospects for Gujarat-based companies. Analysts maintain that announcements such as setting up nationwide gas grid will benefit GGCL, GSPL and Adani Enterprises, while focus on healthcare could boost the prospects for companies such as Torrent Pharma and Cadila Pharma.

(This article was published on April 7, 2014)
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