Despite the stock markets having remained subdued for a while now, one foreign brokerage house has started to sell India as a safe bet.
Indo Suez W I Carr Securities India recently held a two-day conference for fund managers to discuss the changing investment strategies in the Indian and Asian capital markets.
Sunil V Seth, head of research, Indo Suez W I Carr Securities India, made a presentation on the investment strategy for the region.
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Seth was of the view that one should look for individual stocks and not the market as a whole while making investments.
W I Carr, however, has a negative projection for the next 6-to-12 months. Seth believes that the trend will remain vulnerable to global problems. This, according to him, could affect the inflow of foreign money into the country, and foreign institutional investors could remain net sellers in financial year 1999.
According to him, the Unit Trust of India fiasco continues to cast a long shadow, and this could play a vital role in tilting the sentiment. Also, the government's disinvestment programme could result in funds going out of the bourses.
The sluggishness in the economy and low business confidence are expected to continue, and the overhang of international economic sanctions would remain unaltered which will haunt the players, Seth said.
However, the foreign brokerage also believes that there could be some positive influences that could have an impact on the drift. India is increasingly looking like a safe haven compared with other Asian economies, Seth said.
Also, India is not subject to deflationary environment like the rest of Asia, and India's weight in the Morgan Stanley Emerging Markets Index has risen which is also seen as having a positive impact.
It is also of the view that the Indian economy is slowing down at a gradual pace. The industrial growth is expected to drop further from 6.2 per cent in financial year 1998 to 4.7 per cent in financial year 1999.
The inflation is expected to rise from five per cent in financial year 1998 to 7.5 per cent in financial year 1999. While the yield curve is shifting up, the interest rate is expected to firm up 100 points during the second half of financial year 1999.
Fiscal deficit is expected to touch 6.4 per cent as against the government's estimate of 5.6 per cent for financial year 1999. It is estimated that the current account deficit will rise from 1.4 per cent in financial year 1998 to 2.2 per cent in financial year 1999.
Carr also believes that a weak economy will result in poor corporate earnings growth in the financial year 1999. Rising inflation and interest rates and weaker currency are expected increase the cost pressure.
The brokerage is overweight on fast-moving consumer goods, pharmaceuticals, software, telecom and oil and gas sectors.
On the other hand, the firm is underweight on cement, steel, diversified industrials, shipping, textiles while it is neutral on the financial sector, autos, chemicals, engineering, aluminium, utilities, transportation and hotels.
The top buys, according to Carr, includes Hindustan Lever, ITC, NIIT, MTNL, HPCL, Bajaj Auto, Bhel, Tata Infotech, Wockhardt and Corporation Bank. The top sell list includes ACC, Telco and Cadbury.