Indian markets rebound: considered safer

TOI
Rashmee Roshan Lall

Fund managers and analysts here, in the world's financial capital, said "there is no safe market but India is still considered safer" than others, in an unqualified vote-of-confidence for India Inc, 24 hours after Black Monday forced traders to bet on the risk of a synchronized global downturn.

With fears of a looming US recession spreading to every continent, the vote of confidence in India came as Monday's global crash in share prices wiped nearly 80-billion-pounds off the value of FTSE's blue-chip stocks in the biggest one-day points fall in London's history.

Speaking to TOI , Deepak Lalwani, director of the high-end stockbroker Astaire & Partners, said the shivery state of global markets, not least India, had not deterred clients looking to invest in one of the world's fastest-growing markets.

"My clients are quite happy to buy blue-chip Indian shares at these levels," Lalwani said, rattling off a list of stocks – Ranbaxy, Reliance, L&T – snapped up by London-based investors looking to the long haul.

He cautioned that at least part of the Sensex fall was because "the Indian market had run ahead of itself...if you look at Indian funds, India's looked very pricey, so it is right too, to be sold off".

Lalwani, who claims his clients rarely look to inject hot money into growth markets, said he had been struck by the prevailing view that Indian blue-chips were meant to "buy and hold".

In a comfortable, if interesting, take on the day-old reverses on stock exchanges worldwide, not least India, fund managers here said the falls in emerging markets such as India should not be taken as a general loss of confidence but as a sign that "select stocks had their froth removed, compared to a week ago".

The Indian market correction, characterized by some as a "stretched evaluation", is also being seen in the intensely comforting, well-worn framework of India's overall growth story. This, declared Lalwani, "had not changed because of the US recession".

Said Nick Parsons, head of strategy for NAB Capital, "There was no real trigger for what was a Black Monday. Overnight there was the very large sound of pennies dropping followed by a general market capitulation. What the markets have woken up to is that, yes, there will be a recession in the US and, no, the rest of the world won't be immune to that slowdown."

Added Graham Turner of GFC Economics, the gloomy mood in the markets might have been the delayed reaction to news last week of financial troubles for the US companies that insured the bonds linked to subprime mortgages, the value of which has plummeted as a result of falling real estate prices and rising home repossessions. He said, "The stock market has finally cracked and it has cracked because of all the underlying problems. People are worried about consumer spending going down, and with the stock market going down as well the two factors will start to feed off each other".

But many believe London's India fund-managers may be whistling in the dark considering that share prices have dropped by 14 per cent since the start of the year, with the near 900-point fall in the FTSE 100 wiping out all the gains of the last 18 months and putting renewed pressure on UK pension funds.

Monday's 5.48 per cent fall is the biggest in percentage terms since the immediate aftermath of the 9/11 terrorist attacks on the US, but it is at least still less than half as big as the record 1997 drop by 12.2 per cent.

FII money pulled out on global fears, disregarding the strength of the Indian market, and now it is set to come back in and snap up prime stocks at low prices. This is why small investors feel done in. See the list of the top FIIs investing in India.


See this prediction on the World Economy last September:

Vinod Sethi manages a $1-billion foreign fund investing in India. “The Indian markets have been driven by FII money till now, and some of their favourite stocks have very high valuations even by global standards,” he says. “The short-term impact can be that foreign fund flows slow down or stop; but this is debatable, and its impact is based on how long the contagion will last, and which banks and investors get pulled into it.”

“As investors in US markets consider recessionary expectations and returns on both equity and debt, they will look towards growing emerging markets, including India,” says B.P. Singh, advisor to the UK-based Atlantis Fund. “In the past five years, FIIs have gotten used to an absolute rate of return; they want 8-20 per cent returns on their investment.” In other words, almost all institutional investors, be they pension funds or university endowments, want hedge fund type returns.

Some folks favour the opposite view. If the credit cycle worsens in the US, most foreign funds will probably book profits in emerging markets, either to inject liquidity into their home markets or because of redemption pressures.