Gulf in­vestors need be selec­tive in In­dian stocks

The Pak Banker - - COMPANIES/BOSS -

For in­vestors look­ing at In­dian stocks as the one of the bright spots in the emerg­ing mar­ket com­plex, as­set man­agers have a word of cau­tion. The most-watched Bom­bay Stock Ex­change in­dex has shed al­most all the gains ac­cu­mu­lated since May 2014, when the Naren­dra Modi-led govern­ment took over the reins, and the in­dex is on course for the worst Jan­uary since 2011.

For­eign in­vestors have also been sell­ing In­dian stocks as part of global sell- off. Over­seas in­vestors have sold $1.7 bil­lion of lo­cal as­sets amid wor­ries about global growth and a rout in oil prices. Th­ese over­seas in­vestors have been frus­trated by the pace of key re­forms like the Goods and Ser­vices Tax, among oth­ers.

"We have been a bit frus­trated with the pace of re­forms in In­dia. They have not been com­ing as quickly and pow­er­fully as ear­lier hoped. We see po­ten­tial con­cerns on non-per­form­ing loans side in the bank­ing sec­tor," Avo Ora, fund man­ager, Asian eq­ui­ties exJa­pan at Pictet As­set Man­age­ment told me­dia. Even Giles Keat­ing, man­ag­ing di­rec­tor, head of re­search and deputy chief in­vest­ment of­fi­cer at Credit Suisse agreed to that view. "In­dian eco­nomic fun­da­men­tals bet­ter than many oth­ers, not least be­cause it is an en­ergy im­porter. How­ever some loss of mo­men­tum is likely in the near-term. But now the govern­ment has to show it can suc­ceed with two cru­cial re­forms - land re­form and the na­tional sales tax. With­out those, In­dia can­not make the leap to the next level," said Keat­ing.

Ajay Agral, Head of In­dian Eq­ui­ties at Bar­ing As­set Man­age­ment, re­mains pos­i­tive on the In­dia story, and has a bullish bias on pri­vate sec­tor fi­nan­cials, con­sumer dis­cre­tionary and in­dus­trial stocks.

"In­vestors need to be pa­tient and have as long an in­vest­ment hori­zon as pos­si­ble. The growth is tougher com­pared to the past in the cur­rent global eco­nomic en­vi­ron­ment, which means that com­pa­nies may find it dif­fi­cult to have mean­ing­ful growth in the short term. On the other hand, if we choose a com­pany with a strong busi­ness op­por­tu­nity, strong man­age­ment fo­cused on ex­e­cu­tion and one with a ro­bust bal­ance sheet, th­ese com­pa­nies are likely to de­liver above av­er­age re­turns over the long term," Agral said.

Mean­while, the World Bank has pro­jected that In­dia would re­main com­fort­ably the fastest-grow­ing large econ­omy in 2016, at a rate more than a per­cent­age point higher than China. The World Bank has pro­jected the In­dian econ­omy to grow at 7.8 per cent in 2016 and China's to grow at a more mod­est 6.7 per cent while the world econ­omy as a whole would grow at 2.9 per cent.

How­ever, the China-led volatil­ity is still pain­ing in­vestors. Global mar­kets have been un­der in­tense sell­ing pres­sure since the start of the year on con­cerns about slow­down in China. The Shang­hai Com­pos­ite In­dex has shed a quar­ter of its value, the most in Asia, caus­ing panic in the world mar­kets. and that even forced the US Fed­eral Re­serve to ac­knowl­edge on Wed­nes­day af­ter the pol­icy meet­ing that they have been closely mon­i­tor­ing global eco­nomic and fi­nan­cial de­vel­op­ment.

"Volatil­ity in China comes from a cou­ple of rea­sons, there is global volatil­ity that is spilling over. One is due to the tight­en­ing by Fed­eral Re­serve. The other as­pect in 3-6 months, we have seen Chi­nese govern­ment stum­ble in terms of mes­sag­ing," said Pictet's Ora, who is over­weight on China, In­dia, Pak­istan, with a tilt to­wards north Asia. The ma­jor con­tri­bu­tion for the per­for­mance of the Asia fund, which Ora man­ages, has been China un­der selec­tive stock spe­cific themes, as mar­kets were overly con­cerned about the slow­down in the world's se­cond big­gest econ­omy.

"We have picked up some struc­tural sto­ries in China ex­am­ple eCom­merce, tourism etc. While the world has been fix­ated in terms of China col­lapse or slow­down, we have been see­ing great op­por­tu­ni­ties to pick up stocks that has been pro­pel­ling the port­fo­lio. 2016 would be a chal­leng­ing year.

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