‘Banking-to-poor to spur financial stocks’

A push by India to get poor Indians into the banking net will boost financial stocks and help bourses too.

A push by India’s government to get poorer Indians into the banking net will boost financial stocks and help the country’s stock market ride out a rocky start to 2011,the head of South Asian equities at fund house Jupiter said.

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* Investors still underweight emerging markets

Most of the Indian population are unbanked or underbanked. There is a push by the government to have people franchised with bank accounts,Avinash Vazirani said. This is happening right now. The impact of this will be felt now.

The Indian government said in Monday’s budget the country’s 73,000 villages with populations of more than 2,000 must have some form of banking facility by March 2012,part of a series of measures to increase spending on millions of its poor.

Vazirani said banking stocks,which have a 25 percent weighting in Jupiter’s 300 million pound ($488 million) India fund,are set to benefit from the initiative. His largest bank holding is ICICI Bank,India’s second-biggest lender.

Vazirani,who has managed the fund since its inception in February 2008,said Indian banks were easy-to-understand companies limited to simple borrowing and lending transactions,unlike some of their western counterparts.

Valuations are cheap,and stocks offer around 20 percent returns on equity,he said.

STRUCTURALLY UNDERWEIGHT

The Indian stock market is one of the worst performers so far in 2011 after a series of corruption scandals damaged the country’s image as an investment destination.

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The BSE index,which comprises the 30 largest and most actively traded stocks in India,has fallen more than 10 percent in 2011.

Vazirani said the spate of scandals was a long-term positive for the Indian economy as it demonstrated government determination to root out corruption.

We are seeing a cleaning up of the Indian political system. India is a noisy democracy,he said.

What is happening is good. It might slow things down at the bureaucratic level,but it’s good because it stops people being corrupt.

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The Jupiter fund has returned 16.5 percent in the three years to Feb-end versus a 4.8 percent decline in the benchmark MSCI India index,Lipper data shows.

Falls in Indian stock prices come at a time when many investors are pulling back from emerging markets after a period of double-digit gains,but Vazirani said India’s economy,driven by domestic consumption,remained attractive. Fundamentally,the Indian market has a lot of growth left. On a long-term structural basis,investors are underweight emerging markets. Vazirani said.

($1.6144 Pound)