Kotak plans $250 mn offshore fund

After sliding more than half this year as cash-strapped foreign funds pulled out more than $13 billion, the main BSE share index trades at a 12-month forward price to earnings multiple of about 10 times, well off over 20 times at the start of the year.

Parambi said he expected the market would rise by about a third in 2009 as investment flows improve in the second half on lower inflation and commodity prices.

The index, which was trading up 3 per cent at 10,010.17 by 0835 GMT, has already gained 30 per cent since hitting a three-year low in October with foreign funds ploughing in nearly $445 million so far this month.

“We plan to have the first close in the next three months,” Parambi said in an interview, adding the fund would invest in shares of 15-20 medium and small-sized firms across sectors.

He said the market could be choppy as companies faced a tough December quarter and slower growth next year, but earnings could bounce back after 2009/10.

India’s economy, Asia’s third-largest, is largely driven by domestic demand and is relatively less dependent on exports. This should draw in funds as major economies such as the United States, eurozone and Japan grapple with recession.

Growth in India is expected to slow to about 7 per cent in the current financial year ending in March from 9 per cent or more in the previous three years, but this will be the world’s second fastest pace of expansion.

Parambi, who has been with Kotak for nearly two decades, said a stable financial system, cracking commodity prices and lower valuations would make India a preferred destination for foreign investors.

“Most of them accept that you can make great returns, they are scared of the short term,” he said.

The international asset management arm of Kotak has a 10-member investment team operating out of Singapore and Dubai and has a total staff strength of about 75 people spread across the United Kingdom, the United States, Gulf and Asia.

Annual inflation, which fell to a nine-month low below 7 per cent in early December from a peak of 12.9 per cent in early August, should ease to 3 per cent by the end of March, Parambi said.

He said Kotak had raised $300 million in an offshore debt fund in November and aimed to gather more money for fixed income as the firm looked to boost its total assets under management to about $2.5 billion in 2009 from $1.5 billion now.

Kotak said in a research note liquidity in India should stabilise in the second half of 2009 and the economy could grow by 6.5-7 per cent in 2008/09.