A growing population, strong levels of consumption and a resurgence in manufacturing activity have boosted the Indian economy over the past year – and market watchers are actively looking for opportunities in the South Asian powerhouse. India’s stock market is also booming, prompting economists to say its market capitalization could reach $60 trillion over the next two decades. The BSE Sensex index – which comprises 30 consolidated stocks on the Bombay Stock Exchange – has risen around 10% in the last six months, while the benchmark Nifty 50 index is 12% higher. This comes after the Nifty 50 surged 20% in 2023. It is now ranked the fourth largest in the world with a valuation of more than $4.6 trillion, having overtaken Hong Kong in December. “The stars have aligned for India in terms of demographics, population and market movements. Prime Minister Narendra Modi has come in with policies that have completely changed the landscape of things in India,” said Neil Bahal, founder of the company fund management company Negen Capital. CNBC Pro earlier this year. This comes as India’s giant elections – with around 970 million registered voters – begin, taking place between April 19 and June 1. The last elections in 2019 saw Prime Minister Narendra Modi win a second term in office by a landslide. Peeyush Mittal, portfolio manager at Matthews Asia, agrees with the consensus that Modi will get a majority once again, which would be a “non-event” for markets. “If Modi comes back to power, political stability would continue. We are already having quite decent monetary policy stability with the current U.B.I. [Reserve Bank of India] with the INR [Indian Rupee] being one of the most stable currencies,” he told CNBC Pro on April 17. “There’s always a small chance that that doesn’t happen, in which case you will definitely see a negative reaction in the market.” Mittal, who manages the Matthews India Fund $850 million, suggests investors hold 5% of their portfolio in Indian stocks “as a rule of thumb,” in line with the nation’s growth rate and percentage contribution to global GDP “India, overall a market, is more expensive than in history. And small and mid-cap companies are even more expensive and have the highest premium. But large-cap indices offer good risk reward that investors can capitalize on,” he said. Conrad Saldanha, portfolio manager at the Neuberger Berman Emerging Markets Equity Fund, agreed. He said that “large-cap indices they lagged the broader index last year due to the heavy weighting of banks, consumer goods and IT, all of which underperformed. The small-cap index, on the other hand, outperformed significantly last year with significant inflows lifting valuations.” Infrastructure plays One segment Mittal likes is infrastructure, with companies targeting to get a boost of 10 trillion rupees ($120 billion), equivalent to 33% increase in government capital spending this year “The government spent almost 3.5-3.7% of GDP on infrastructure ; we think it will go higher [and] continue to drive demand for different types of capital goods and equipment,” he said, citing segments such as power generation and equipment manufacturing as key industries set to benefit. Among the companies on his watch are the maker of power equipment Bharat Heavy Electricals and engineering conglomerate Thermax, in the context of a planned expansion of power generation capacity “Both companies provide equipment for setting up new power plants. And I think when the orders start, they will benefit greatly,” Mittal said. Elsewhere, he has his eyes on engine equipment maker Cummins India. Investor interest in the company has been high thanks to the nearly 110% of its share price over the past 12 months Mittal said he expects the company to benefit from a recovery in energy demand as the country experiences larger energy deficits, Neuberger Berman’s Saldanha is also looking closely at this sector, naming Bharat Electronics as one of its own. Calling the state-owned company a leading player in the defense equipment sector, the portfolio manager appreciates the fact that it has a strong order book. Promise in the financial sector Apart from infrastructure, the portfolio managers have eyes on financials, especially large private individuals “Their valuations are at historic lows, much lower than in the last 10 years,” Mittal said. “While interest rate cuts will likely have a negative impact.” negative impact on margin for banks, we actually believe that private sector banks can deliver quite decent returns in the next six to nine months because their initial valuations are quite cheap.” He named ICICI and HDFC as his top picks. In Meanwhile, Saldanha likes IndusInd Bank, which he describes as “one of the fastest growing private sector banks in India, with a strong franchise in auto and retail lending along with microfinance”. in India is that of hospitals and healthcare spaces, as the growing population intensifies the nation’s need for better healthcare facilities. For Saldanha, one of the main beneficiaries of this theme is Apollo hospitals enjoy future growth through an increase in the number of beds and improved accessibility which will translate into higher revenues per bed.” His shares have risen nearly 40% in the past 12 months. According to FactSet data, 24 of 26 analysts covering the stock have a buy or overweight rating on it. They give it an average target price of 7,047.81 Indian rupees, or an upside potential of 16.1%.