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Patient India investors wait for turn around

Populist posturing is hampering the nearly $2tr economy

Gulf News

So many things in India are not going well for the economy but seasoned investors are biding their time, firmly resolute in their belief that the world’s second-most populous nation has tremendous potential to turn things around and provide handsome returns.

Volatile share price movements, which have been the highlight of the market over the past few weeks, are set to stay for some time to come with a malfunctioning parliament holding up vital statutory bills that are needed to get the ball rolling on reforms.

Populist posturing by national and regional parties across the political spectrum is hampering the nearly $2-trillion economy, Asia’s third-largest after China and Japan, whose growth has slowed sharply to around 5.5 per cent from more than 9 per cent until about 18 months ago.

The first two days of proceedings in parliament that opened for the winter session on Thursday was disrupted by opposition parties and this trend is unlikely to change until the government takes the lead to pacify tempers. The opposition is demanding a debate and vote on the government’s decision in September to allow global retail giants like Wal-Mart and Carrefour into the domestic supermarket sector.

The ruling Congress party-led coalition is ready to debate the issue but is against a vote in parliament because many of its allies and even Congressmen are against opening the door to foreign companies in the sector because they fear the move would drive small traders out of business.

The logjam could potentially hurt other parliamentary business, snuff out debates and delay legislation needed to allow foreign participation in the pension sector, higher foreign holding in insurance and paving the way for issue of new banking licences.

All these are bad news for New Delhi’s cash-strapped government, which is fighting a losing battle to rein in the fiscal deficit to its upwardly revised target of 5.3 per cent of GDP. Economists say there is every chance of the shortfall shooting past 5.6 per cent by the end of the financial year in March.

Still, market pundits are looking ahead with cautious optimism.

“December is very kind to equities,” Morgan Stanley said in an India strategy report titled “Darling December”. The month has produced a

4.6 per cent median return with an 80 per cent probability – the best for any month in the calendar, said the brokerage, trawling through 32 years of data from 1980

“Ordinarily speaking, such as this time around, December should prove good for bulls.”

The fiscal problems in the US and the political issues in India are risks to the call, but there could be a silver lining.

“The parliament session causes damage to the policy environment.

Expectations are low, so an upside surprise is more likely,” Morgan Stanley said, adding it preferred large-cap cyclicals in banks, autos, media and industrials. “The stocks in our focus list include IDFC, ICICI, Maruti, Tata Motors, Zee and L&T.”

Others are upbeat on the coming year.

“We remain constructive on Indian equities as we go into 2013,” Adrian Mowat and Sunil Garg, analysts at JPMorgan Chase & Co, wrote in a report. The brokerage picked Indian stocks as their top selection among the BRIC nations next year, citing improving policy and easier monetary conditions.

Notably, JPMorgan is underweight on rival China, where the key concern is profits as capacity continues to grow faster than demand, it said.

The top-30 Sensex nudged up 1.1 per cent to 18,505.57 in the week, but there were clear signs of indecisiveness and caution was the watchword. The government raised Rs8.1 billion (Dh551 billion) on Friday by selling just under 6 per cent holding in state-run Hindustan Copper Ltd, in its first asset sale this year and should help cushion the fiscal deficit.

The sale was copiously helped by heavy subscriptions from state-owned Life Insurance Corp and government-controlled State Bank of India. New Delhi aims to collect Rs300 billion through divestments in 2012-13, and more share sales should hit the market in the coming months.

The writer is a journalist based in India.