Indian stocks have been one of the most resilient among emerging markets in the past year — and Goldman Sachs said equities will likely climb even higher in the coming months.
India, the third largest economy in Asia, was the only emerging country in the region with a stock market that ended 2018 in positive territory.
This year, the Nifty 50 index gained around 5.7 percent as of March 26. Goldman Sachs predicted in a report this month that the index could climb to 12,500 — or around 8.85 percent higher than current levels — this year.
Stocks to buy
Timothy Moe, chief Asia Pacific equity strategist at Goldman Sachs, told CNBC's "Street Signs" on Wednesday that there are several factors behind the bank's call for Indian stocks to climb higher.
Macroeconomic conditions have improved in India and earnings of listed companies have come in better than their regional peers, according to Moe.
"You put all that together, and then you add in the potential for the improvement in sentiment into the election, and it says to us that the risk-reward is pretty decent over here," he said.
The investment bank said in the report that it has a "buy" rating for financial stocks such as State Bank of India and ICICI Bank.
For the industrial sector, the bank's analysts have recommended shares in construction engineering firm Larsen & Toubro, Adani Ports and Special Economic Zone, as well as automaker Ashok Leyland.
Pre-election rally
India's general election is scheduled to start on April 11, and Prime Minister Narendra Modi's government is seeking a second term in office.
In the last six election cycles, Moe said, investor sentiment typically improved before the vote and subsided three to four months after that.
There could be several reasons behind that pre-election rally in India, the strategist said, citing supportive fiscal policies, or optimism over a potential decline in political uncertainties.
"The point is that whatever causal factors you want to prescribe to it, the empirical reality is that the market historically has done pretty well in the lead-up to elections," said Moe.
WATCH: Why is India growing so fast?
