Mumbai: Money managers including Ashmore Group Plc and Prudential International Investments Advisers LLC have a new rationale for an old favourite trade. Prime Minister Narendra Modi is on the verge of pushing through one of India’s biggest economic reforms.

Lawmakers are set to vote on a constitutional amendment to enable the goods-and-services tax (GST), that would create one of the world’s biggest single markets. The tax, which has been a decade in the making, is seen benefiting industries such as cement, automobiles and logistics by easing the movement of products across state borders. Finance minister Arun Jaitley has said it will add as much as 2 percentage points to economic growth.

The bill’s passage will burnish the appeal of Indian assets for global funds, that bought a combined $2.7 billion of stocks and bonds last month, according to Ashmore and Aquarius Investment Advisors Pte. It would also strengthen the Modi government’s credentials of being able to push through difficult legislation in a nation that’s been criticized for its slow pace of reforms.

Also Read: GST impact: top 10 stocks that stand to gain

“We will increase exposure," if GST is cleared, said Jan Dehn, London-based head of research at Ashmore, which oversees about $51 billion in emerging markets. “We have been expecting that and if it does not pass, we will have to revise our positive view of India in a negative direction."

The benchmark S&P BSE Sensex last week capped the longest run of monthly gains since 2014, while sovereign bonds surged the most since 2013.

Industries where indirect duties are high, such as appliances, autos, consumer staples and home-building products, are likely to benefit from the tax, said John Praveen, managing director of Prudential International. Apparel, retail and textiles may be hurt, he said.

For all the optimism about the new levy, Indian stocks slid for a fourth day as expensive valuations curbed further upside. The Sensex lost 1%, the most since 24 June.

The S&P BSE MidCap Index reached a record on Monday. The rally has lifted the gauge’s price-to-earnings multiple to 32, a level seen in January 2008, a year that saw Indian stocks suffer their worst-ever annual loss.

Also Read: GST bill: Five things to know

“We would not get incrementally bullish even if the GST is passed as valuations are still not comfortable," Mihir Vora, chief investment officer at Max Life Insurance Co. in Mumbai, said in an interview. The insurer, which has $5.4 billion in assets, already owns shares of cement companies, automakers and logistics firms, businesses that are expected to gain from the tax, he said.

Besides, the benefit from the GST will reflect in company profits over the next 18 to 24 months, Sanjiv Bhasin, executive vice president of markets at the IIFL Holdings Ltd., said by phone from New Delhi.

Even so, for offshore investors the bill’s passage is as much about the trajectory of India’s economic reforms as it is about the benefits to industry. Since taking office in May 2014, Modi has expanded foreign direct investment in sectors such as airlines and railways and overhauled a century-old bankruptcy law.

“GST’s clearance sends a strong message to the global investment community," said A.S.T. Rajan, a senior managing director at Aquarius Investment in Singapore. “It increases the attractiveness of India as an investment destination." Bloomberg

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