Rising interest rates are unlikely to dampen the pace of economic growth
India’s stocks will withstand the withdrawal of stimulus measures and extend last year’s rally, the biggest in 18 years, as domestic spending strengthens, said Prudential Financial Inc.
“This will not kill the rally,” John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International, a unit of Prudential Financial, which oversees $667 billion, said in an interview. “Rising interest rates are an acknowledgement of the strong economic growth in India.”
Asian nations from China to India have begun withdrawing monetary stimulus to avert asset bubbles and curb inflation as their economies rebound. Any declines in Indian stocks are an opportunity to add to holdings, Zurich-based Bank Julius Baer & Co said. Investor Mark Mobius predicted the nation’s stocks will outperform other emerging markets.
India’s Sensex, the most expensive among the biggest developing nations including Brazil, Russia and China, also known as BRICs, has surged 76 per cent in the past year. It has added 0.4 per cent since the central bank unexpectedly raised borrowing costs on March 19. The seventh weekly advance is the longest stretch of gains for the measure since June. The Sensex rose 0.5 per cent to 17,644.76 at the close on Friday, the highest in more than two months.
Volatility
The central bank last week raised the benchmark reverse repurchase rate by a quarter of a percentage point to 3.5 per cent and the repurchase rate by the same amount to 5 per cent. India may have to sacrifice growth to combat inflation, Governor Duvvuri Subbarao said March 24.
Investors should sell shares in the nation’s largest companies, Sanjeev Prasad, executive director at Kotak Securities, said after last week’s increase in borrowing costs, citing the prospect of further rates increases. Prasad has been rated India’s top-ranked analyst in the past four years in Asia Money polls.
Praveen expects volatility and “some correction” in the near term, and said automakers and household goods producers will lead the rally in India’s stocks, without naming any companies. Tata Motors and Mahindra & Mahindra, among the nation’s biggest automakers, and Hindustan Unilever, the largest consumer products manufacturer were the three best performers on the Sensex on Friday.
‘Support the market’
“There is strong consumer demand in the Indian economy, which will lead to higher sales and profit for such companies and that will support the market,” said Praveen, whose company operates under the brand name Pramerica in the nation.
He also likes shares of infrastructure companies as they will benefit from the “government’s thrust” in building roads, bridges and power plants.
India’s $1.2 trillion economy, Asia’s biggest after Japan and China, may grow 8.2 per cent in the year commencing April 1, the Finance Ministry said in February. That would be the fastest pace in two years. Industrial output gained 16.7 per cent in January from a year earlier, following December’s 17.6 per cent increase, the biggest jump since at least 1994, according to Bloomberg data.
“There are only certain pockets in the world where there is growth, and India is one of them,” Rajen Shah, chief investment officer of Angel Broking in Mumbai, said in an interview. “India would continue to attract foreign funds.”
He expects the Sensex to rise 11 per cent to 19,500 by the end of the year, and also predicts gains in shares of consumer stocks, as well as hotels and tire makers. Angel is India’s biggest brokerage by distribution network, according to Dun & Bradstreet.
The Reserve Bank of India will continue withdrawing economic stimulus measures to curb the pace of price increases, Subbarao said March 24. Policy makers raised interest rates after benchmark wholesale inflation gauge rose to a 16-month high. The next central bank policy meeting is scheduled for April 20.
