Investment cycle to pick up pace in FY14: Christopher Wood, CLSA in ET

India's investment cycle could pick up steam before the end of the current fiscal just ahead of parliamentary polls, with the government showing resolve in passing key reforms in the energy and power sectors, and the Cabinet Committee on Investment playing a decisive role in clearing projects.

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There is evidence of a resumption in the investment cycle before end of FY14 despite uncertainty posed by polls which are likely in May 2014, writes Christopher Wood, chief equity strategist, CLSA Asia Pacific Markets, in his report Greed & Fear - Heat, Dust and Policy.

On the strength of three positives, Wood has hiked CLSA's overweight position on India by a further percentage point to 10%, or 3.4 percentage points higher than that ascribed to the country by the benchmark MSCI Asia Pacific ex-Japan.

Still, the critical issue of investing in Indian equities will depend on the extent to which investors should 'rotate' out of expensive consumer-related to investment-related stocks, he said.

The biggest election risk, Wood said, is neither Congress nor BJP winning sufficient seats to form a government, leading to a 'Third Front', a loose coalition of regional parties, forming the government, which can be a possibility, if not a probability. The most positive outcome for elections from the point of view of stock market sentiment would be the formation of a BJP government, led by Gujarat Chief Minister Narendra Modi as it would trigger expectations of much more pro-business policies.

The triggers for optimism are signs of improvement on the energy front, said Wood, underlining the 7.9% jump in Coal India's dispatch volumes in the last quarter of the previous fiscal year (FY13).

The second is faster clearance for projects. Cairn India, for instance, has said it received government approval for exploration with greater alacrity than in the past. Third, the power sector reforms are 'heartening'.

In the first two months of FY14, 19 states have filed 'tariff revision petitions' with regulators. And 10 state governments have agreed to take over 50% of the outstanding short-term debt of state electricity boards.