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May 15, 2014 12:23 pm

Indian stocks move into ‘overbought’ territory

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Will it prove to be a classic case of “sell on the news”?

The result of India’s election is due to be announced on Friday. The poll has taken several weeks but investors have been betting heavily on its outcome for even longer.

Since the opposition BJP nominated apparent winner, the supposedly pro-business Narendra Modi as its prime ministerial candidate in mid-September, the Indian stock market’s Sensex index has risen 21 per cent.

This leaves Indian shares trading on about 15 times forecast 12-month profits, compared with nearly 11 times for emerging markets as a whole, according to Bloomberg.

The Sensex’s 14-day relative strength index – a gauge of momentum – is above 76 and in “overbought” territory.

Chart: Indian equities

The rupee, which hit a record low of Rs68.80 per dollar last August, is now changing hands around Rs59.35, a rally so swift it apparently prompted the central bank on Thursday to intervene in order to stem the currency’s rise, so forex traders reckoned.

Cynics may say this leaves Indian markets vulnerable to disappointment – immediately if Mr Modi’s victory margin is not as great as hoped; eventually when his mooted efforts at economic reform get bogged down.

Sensex 30-day implied volatility of 15 is the high for the year. Just in case.

jamie.chisholm@ft.com

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