World according to GARP

Back To The Future

The India story is hardly new — Morgan Stanley’s India Index outperformed MSCI Asia (minus Japan) by 31 per cent last year — and has re-appeared after a three month hiatus after May 2004, when the UPA Government came to power. The big-picture factors — a rebound in domestic consumption, and an expected upturn in the investment cycle — have to be viewed along with a low exposure to industrial blue chips at sustainable valuations. At 14 per cent, FII ownership in Indian stocks is the lowest in Asia.

For more proof turn to Morgan Stanley’s Emerging Markets Index. Over the preceding three-month period, Indian stocks have delivered returns of 13.76 per cent, which — barring Indonesia (17.20 per cent) — puts it at the No. 2 position in Asia. Taking a global perspective, India would rank No. 3 behind Brazil and Indonesia. Nandan Chakraborty, Head of Research at Enam Securities sees the BRIC countries (Brazil, Russia, India, and China) as the key players. ‘‘Look at each of these countries: Brazil and Russia are big commodities markets, which is risky. Russia and China, on the other hand, are not free markets. India scores on most counts. We are just starting out and in Asia, India has the best demographic profile, and can be the fastest-growing market,’’ he says.

Made In India

The interest has gone beyond pharma, financial services and technology sectors, to a wider basket of industries. ‘‘The factors working for India are increased corporate governance, clarity for investors and capital expansion in sectors like steel, textile, telecom and so on. These obviously make India a viable investment destination,’’ says Jignesh Shah, portfolio manager at ASK RJ Investment Management. The closest Asian rival China’s ‘infrastructure-led growth’ is slowly losing lustre, which analysts say will start becoming evident in the next two quarters. ‘‘Other factors are also in our favour — foreign inflows in smaller companies. With continued action in mid-cap stocks, the outlook seems positive,’’ says Joshi.

The market sustains respect on three factors: Consistent improvement in corporate earnings, promoters’ intention to maintain assets in the balance sheet, and consistent affirmation of political will. The real test is now on how the UPA Government can sustain the confidence of foreign investors.