It is the age of equities, says economist

The economic scene in India favoured more investments in equity, says a senior economist from AMP Capital, a large Sydney-based fund manager.

The last decade of economic liberalisation had helped companies grow and become more profitable. The forecast was one of growth and therefore called for investments in Indian stock markets, said Allan Jacobs, senior economist and strategist of AMP.

India's gross domestic product (GDP), which decreased as a share of global GDP in the decade to 1992, was now bettering much of the rest of the world, Jacobs said at a talk here on Tuesday.

Indian firms were returning higher earnings per share (EPS) compared with their Organisation for Economic Cooperation counterparts. Jacobs warned, however, poor physical infrastructure and unrealised potential for foreign direct investment could be the problems.

Return on equity in India stood at 20 per cent, higher than in the US and Japan. EPS growth in the last part of '90s will continue and the markets will gain this year, he said. This reflects stock markets' growth as the new millennium approached.

Two years ago, falling inflation, easy money and low valuations had combined to boost profitability of firms and conditions today were similar. Government bond yields on the other hand had become less attractive, making equities more attractive.

More market capital-friendly regulations can stop the country from underperforming on the FDI front. This year, inflation could ease further and GDP will grow at some 6.6 per cent.

But, measuring inflation should also include healthcare and education and not just prices of commodities, he said.

AMP Capital manages some Aus $70 billion (Rs 40,000 crore), including investments in India, N H Venkatesh, a general manager here with AMP Sanmar a life insurance joint venture in India said.