Money managers are more bullish on the India growth story
Indian stocks will avoid a sell-off that drove China into a bear market last week as the South Asian nation is poised to topple its neighbour as the world’s fastest growing economy, ICICI Prudential Life Insurance Company said.
“India’s economy will grow faster than China’s next year,” Puneet Nanda, executive vice president at ICICI Prudential, the country’s largest private insurer with $6 billion in equities, said in an interview. “Industrial and services sectors will grow far more rapidly than expected.”
India’s economy may expand this year at a faster pace than earlier forecast as business confidence rebounds, buoyed by government stimulus measures and record low borrowing costs, the central bank said July 27. China’s main stock index yesterday fell into a bear market, denoted by a 20 per cent decline from its peak this year on August 4, on concern economic growth will falter as banks rein in lending.
India’s benchmark Sensitive Index has slid 5.7 per cent from its August 3 peak. The measure is still up 56 per cent this year, the ninth-best performer among 89 global indexes tracked by Bloomberg. “People are under-estimating how good the second half will be,” Nanda said. “We are betting on a strong recovery.” China’s Shanghai Composite Index today rose 4.5 per cent, the most since March and erasing yesterday’s 4.3 per cent slide. Still, the gauge is 16 per cent below its August 4 high.
Accelerating production
India’s industrial production increased at the fastest pace in 16 months in June, adding to signs that Asia’s third-largest economy has escaped the worst of the global recession as low interest rates have encouraged consumers to borrow to buy cars, motorbikes and other factory-made goods. India’s economic growth may exceed 7 per cent in the fiscal year to March 31, and as much as 10 per cent in the following year, Nanda said. China’s gross domestic product may expand 7.2 per cent this year and 7.7 per cent in 2010, the World Bank forecast on June 22. Concern that insufficient rainfall will trigger a decline in India’s stocks is “over-rated,” Puneet said. “Agriculture’s contribution to the economy is just 17 per cent.” Drought fears Indian stocks may slide as much as 15 per cent on concerns that lower monsoon rainfall will slash farm output and cut consumer spending, Bank of America Merrill Lynch said on August 17, saying it expects the nation’s economy to expand 5.8 per cent this year. Citigroup Inc. on August 18 cut its forecast for economic growth to the same pace, citing the drought.
The seasonal monsoon, which delivers about three-quarters of the nation’s annual rainfall, may be the driest in seven years, Ajit Tyagi, director general at the India Meteorological Department, said on August 13, adding that may curb farm output in the world’s second-biggest producer of rice, wheat and sugar. “India remains very attractive for equity opportunities,” Nanda said. He prefers shares in companies that will benefit from economic growth by building power plants, roads and automobiles and providing services including banking and engineering. He declined to name specific stocks.
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Spending
Teera Chanpongsang, the Hong Kong-based manager of Fidelity International’s $2.3 billion India Focus Fund shares Nanda’s optimism that an economic recovery in the South Asian nation will buoy its stocks, saying government spending in rural areas will mitigate the effect of diminished monsoon rains.
India’s Sensitive Index is valued at 17.6 times estimated earnings while the Shanghai Composite Index trades at 22 times earnings and the MSCI Asia Pacific Index is valued at 24 times.
The nation’s insurance companies will probably buy more than the $12 billion of stocks this year than they bought in the Indian stock market last fiscal year, Nanda said.
“Indian equities could provide returns in the mid-teens over the next five to 10 years,” Nanda said.