India Stocks May Suffer Election ‘Blip,’ HDFC Says

May 14 (Bloomberg) -- Indian stocks may halt their second- quarter rally unless the next government attracts foreign investment to revive the economy, said HDFC Standard Life Insurance Co., the country’s sixth-largest private insurer.

The ruling Congress party-led coalition may have won the most seats without securing enough votes to form a government, based on exit polls after a five-week election that ended yesterday. SGX CNX Nifty Index futures slumped the most in two weeks in Singapore while Indian stocks traded in the U.S. sank.

“The election outcome will only be a blip,” Prasun Gajri, chief investment officer at HDFC Standard Life, which manages $1 billion in equities, said in an interview in Mumbai yesterday. “It isn’t the only determinant for the market. It may impact the markets for a month or two but nothing beyond that.”

The Bombay Stock Exchange Sensitive Index, or Sensex, was the worst performer in the first quarter among the so-called BRIC markets that also include Brazil, Russia and China. The gauge rebounded 24 percent in the second quarter, beating benchmark indexes in Brazil and China.

“The rally has been too fast, too soon,” Gajri, 37, said. While the economy has shown signs of an improvement, investors will need to watch for more data, he said.

Nifty Futures Fall

Nifty index futures, derived from the 50 stocks on the underlying S&P CNX Nifty Index on the National Stock Exchange of India Ltd., fell 2.2 percent to 3,560 as of 10:45 a.m. in Singapore, the most since April 28. The Bank of New York Mellon India ADR Index dropped 5.5 percent to 557.22, the most since March 5. The Sensex slid 1.1 percent in Mumbai yesterday.

American depository receipts or ADRs of Infosys Technologies Ltd., India’s second-largest computer-services provider, dropped 4.7 percent to $30.36, the most since April 15. Those of ICICI Bank Ltd., India’s second-largest lender, tumbled 6.7 percent to $20.99. That’s the largest drop since April 20.

The International Monetary Fund expects India’s economy to grow 4.5 percent in 2009, while Reserve Bank of India Governor Duvvuri Subbarao said April 21 that government stimulus and monetary easing could help the economy grow 6 percent in the year that started April 1. The $1.2 trillion economy expanded 5.3 percent in the three months to Dec. 31, the weakest pace of expansion since the last quarter of 2003.

Insurers

Investments by Indian insurance companies will be the biggest drivers of the equity market, Rakesh Jhunjhunwala, ranked a billionaire by Forbes magazine last year, said in an interview last month. Insurers could invest about $50 billion a year in the next two to three years, he said.

Gajri estimates insurers will invest more than $10 billion this fiscal year ending March 31.

“We are cautiously optimistic,” Gajri said. “If the second half shows signs of a recovery, we will remove the word cautious from our stance.”

The measure more than tripled since 2004, before dropping 52 percent last year after a global credit crisis wiped out more than $30 trillion from the value of global equities.

Liquidity flows into the market are very strong as investors’ aversion to risk has receded, Gajri said. Insurers are moving from defensive stocks such as consumer companies and utilities to growth industries such as banks and engineering firms.

Prime Minister Manmohan Singh’s Congress Party-led United Progressive Alliance is competing with the main opposition Bharatiya Janata Party-led National Democratic Alliance and a group of communist and regional parties known as the third front. Votes will be counted on May 16 to elect 543 lawmakers to the Lok Sabha, or lower house of parliament.

The Sensex plunged 11 percent on May 17, 2004, the most in more than a decade, on investor concern a government formed by Sonia Gandhi’s Congress Party and communist allies would slow the pace of reforms.