Does the Basic Materials Sector Still Lead in India in 2017?

India’s (INDA) (INDY) stock market performance has picked up pace since the beginning of 2017. The S&P BSE Sensex has gained about 10% year-to-date (or YTD) through May 18, 2017. The benchmark S&P BSE Sensex is the most popular index in India (PIN), consisting of 30 large-cap companies across key sectors. The basic materials sector gained ~30% in 2016 and is outperforming other sectors in 2017.

Let’s compare the sector-wise performance of the BSE Sensex YTD in 2017 to understand its market performance, as shown in the chart below:

Poor performance in 2016 resulted in India’s equity benchmark gaining just ~2% during the year. However, the S&P BSE Sensex started on a strong note in 2017, with gains of about 10% in 1Q17. The surge was largely driven by a massive state election victory for the ruling party, Bhartiya Janta Party (or BJP). 

The Indian Parliament also passed the much-awaited Goods and Services Tax (or GST) bill on April 6, 2017. As the newly constituted indirect tax regime, the GST is expected to be rolled out once all states pass the GST bill by July 2017.

The S&P BSE Sensex provides investors with a variety of investment avenues. The investors can invest through a number of indexes, including the sector indexes and thematic (or strategy) indexes.

As we can see in the chart above, the BSE Basic Materials Index is the top performer in 2017 so far, with a return of about 30% on May 18, 2017. It is closely followed by the finance sector and consumer discretionary sector (INCO), with gains of about 29% and 28%, respectively. 

The reforms and increased consumer confidence in India seemed to have helped these sectors in 2017. The top gainers in the BSE Sensex in 2017, include Tata Motors (TTM), ICICI Bank (IBN), Hindustan Unilever, and Hero MotoCorp.

Next, let’s look at India’s trade deficit, which has been increasing recently.