On the trail of Sensex
PASSING THROUGH: ALAN JACOBS
S Bridget Leena New Delhi The Bombay Stock Exchange (BSE) Sensex hit a historic record of 6,929.59 points recently, triggering euphoria among investors.
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The high may have come on the back of a good reason: good corporate performance, feels Alan Jacobs, senior international economist and strategist with AMP Capital Investors that manages assets worth $72.7 billion. |
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"Indian companies paid the highest return on equity at 20 per cent compared to developed nations such as the US, Europe, Japan and the Pacific region excluding Japan in 2004," says Jacobs. |
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Jacobs specialises in forecasting global trends as it directly influences AMP Capital Investment's decision on weighting its investments in major asset classes of the domestic firm shares, international firm shares, domestic and international fixed interest, real estate and cash. |
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He shares the responsibility for making critical decisions with regard to investment in the different classes of assets and currency hedging positions. |
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Jacobs is in India on a four-city tour, sharing his views with corporate chieftains on the emerging markets in the Asia-Pacific region with a special focus on the Indian economy. He has been with AMP Capital Investors, one of the largest investment management groups in the Asia-Pacific region, for around two decades. |
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Jacobs explains that the average return on equity of Indian firms show that they have performed well compared with firms elsewhere over the past five years. |
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Since economic reforms were initiated in the early 1990s, Indian firms' earnings per share have done exceedingly well compared with the global earnings per share. One key reason for this is that Indian corporates manage their capital carefully without extravagant investments, says Jacobs. |
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Corporate performance also received a boost through increased revenues, even as costs were reined in. Jacobs' analysis is based on the study of over 100 listed firms. |
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The corporates efforts, Jacobs says, were complemented by a good economic climate. The prevailing interest rate was low and there were no major wage increases in the country. |
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The earnings per share of Indian firms have had a positive correlation with stock market index over a period of 14 years, according to AMP Capital Investors. The performance of companies have influenced the stock markets. |
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Before joining AMP Capital in June 1986, Jacobs worked for the broking community at South Africa's Johannesburg Stock Exchan-ge for six years. Before this, he had his stints with the South African Reserve Bank and the Standard Bank of South Africa. |
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He has an honours degree in economics from the University of Natal, South Africa. He did his masters in financial management from the University of London in 2000. |
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Jacobs says shareholders will reward the corporates that are managed well, and invest wisely by clinging to them and the price of these shares are traded at a premium. |
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On the other hand, if companies squander their investments in unwise ventures, shareholders punish the company by not holding on to their shares. |
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Jacobs has a keen interest in development economics and emerging markets and has tracked markets in the Asia-Pacific region. Talking about the trends for the next year, Jacobs said capital inflow will remain a feature from now on as the outlook for India is positive. Interest rates will rise a bit but liquidity will stay easy. India needs to deregulate and have better infrastructure to realise potentials, adds Jacobs. |
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Pitching India against China, he said China's merit was that it had good infrastructure compared with India's. Jacobs points out with a smile that Indian corporates are well managed and efficiently run compared with Chinese companies. |
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