Gulf investors need be selective in Indian stocks
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.