Mumbai: With foreign investors stampeding for the exit from risk assets as uncertainties cloud a quick resolution to the debt crisis in Europe, the outlook for shares in faraway India is taking a hit for no fault at home.
Foreigners have taken out around $1.5 billion (Dh5.5 billion) from Indian stocks in May, sending the top-30 Sensex down for three of the last four weeks and slashing about a tenth of market value. Simmering concerns the debt problems in Europe may get worse have made foreign investors jittery and triggered a flight to safe-haven assets such as gold.
"So long as the outflow is not stemmed I don't see any respite," said equity trader Rasesh Shah. "When people panic rational thinking gives way to knee-jerk decisions. This is a time to build a portfolio at bargain prices."
The $1.3 trillion domestic economy is firmly on the rebound and corporate earnings are picking up, driven by strong consumer spending in the world's second-most populous nation. India's limited exposure to exports should help the country fend off any major blow from a possible drop in world trade.
Economic growth
There is broad consensus economic growth could hit around 8.5 per cent in 2010-11, and more than nine per cent in the following year — the fastest pace among major economies after China.
And experts believe India is in fine fettle to ride out the storm caused by the Euro zone debt woes.
"We reiterate that unlike in 2008, the current global troubles have far less potential to hurt Indian companies with well-functioning operational parameters," analysts at Credit Suisse said in a research note last week.
"As result, we do not expect substantial earnings downgrade pressures in companies outside metal sectors," they wrote.
ITC, which gets more than 80 per cent of its profit before tax from tobacco, on Friday reported a 27 per cent jump in quarterly profit — the biggest rise in over three years. The diversified company with interests in hotels, consumer products and garments set Rs5.5 a share special dividend and announced it would consider a bonus issue on June 18. The stock was one of the few that rose on Friday, rallying 3.4 per cent to Rs271.30.
Tata Motors, whose products range from the marquee Jaguar and Land Rover brands made in Britain to the cheapest, Nano, besides trucks will be on the investor focus last week as it reports results.
Tata Steel, which controls UK-based Corus that contributes the bulk of its total output, also releases results last week.
New offerings
Meanwhile, the falling stock market took a toll on new listings, with state utility SJVN and private-sector road builder Jaypee Infra slumping below their IPO price on debut — a trend that could dampen investor demand for new offerings.
One of the large issues on the anvil is Indian depositary receipts sale by British bank Standard Chartered, which hopes to raise up to $750 million. It would be the first IDR offering after the government allowed such shares more than two years ago.
The Sensex shed 3.2 per cent last week to 16,445.61 and is poised for its worst monthly performance since a 6.3 per cent slide in January.
The outflow of equity funds dealt a heavy blow to the rupee, which tumbled 3.6 per cent last week in its worst show in 15 years. The currency has lost 5.5 per cent in May, wiping out the year's gain.
The rupee closed at 46.92 to a dollar after hitting 47.335, which was the weakest since last November. Offshore forwards indicated traders were betting 47.33 in three months, compared with 45.38 a week earlier.
The writer is a journalist based in India.
