Indian stocks set to bounce back

Mumbai: Investors should continue flocking toward Indian shares on the back of stronger indications the world economy is on the mend and domestic growth is firmly on a recovery path.

Surprisingly upbeat US corporate results, robust economic expansion in China and a blistering rebound in export-driven Singapore last week helped erase the disappointment over the annual budget and propelled the top-30 Sensex up 9.2 per cent, the biggest weekly rise since late May.

"There is room for upside in India," Mark Mathews, Asia-Pacific strategist at Fox-Pitt Kelton, told CNBC TV-18. "India will grow more than seven per cent this year."

He said the Sensex's correlation to S&P at slightly over 50 per cent was very low and indicated a positive outlook.

"I think the only other country with such a low stock market correlation is Malaysia and that is good," he said.

Grace Tam, vice president of investment services at JPMorgan Asset Management, said last week the fund manager favours China, India and Indonesia.

"Asia is one of the few regions that can support growth," she said in Hong Kong. "We are actually raising some cash to buy the stocks we like, especially those domestic-related stocks like property, financials, retailers and infrastructure-related stocks."

The Sensex has risen more than 80 per cent from its 2009 low in March and trades at a multiple of nearly 17 times reported earnings, compared with 8.8 times four months ago.

Quarterly earnings were a mixed bag, but there were more positives. Bajaj Auto, the second-biggest maker of motorcycles besides scooters and autorickshaws, reported a two-third jump in profit, while HDFC Bank said its April-June profit climbed almost a third.

Larsen & Toubro, the country's largest construction and engineering company, tripled its quarterly profit on the back of one-time gain from its holding in UltraTech Cement to the Aditya Birla Group and said it expected order inflow to pick up after a quarter when the government steps up spending on infrastructure.

Foreigners led the buyers back after the Sensex had tumbled 9.4 per cent the week before in its biggest weekly slide in eight months. They bought shares worth about $430 million (Dh1.5 billion) last week, taking their net purchases to $6.1 billion since the start of January, compared with outflows of over $13 billion in 2008.

The government said it would borrow another Rs1.1 trillion till September, which would add up to Rs2.99 trillion in the first half including amounts already raised since April. This would leave only Rs1.52 trillion for the remainder of 2009-10 for the full-year target of Rs4.51 trillion. "Our expectation is that the borrowing programme is not going to put pressure on bond yields; at best it could be marginal," Finance Secretary Ashok Chawla said on Friday.

The government is also quietly speeding up divestment plans, with power producer NHPC Ltd expected to hit the market with its initial public offer in early August, followed by Oil India Ltd.

A flurry of share sales from the private sector are also readying for launch over the next few weeks - and these could pose a threat to the secondary market as investor funds are diverted to the new offerings.

Copper producer Sterlite Industries, which is majority-owned by London-based mining group Vedanta, last week raised $1.5 billion through a sale of American Depositary Shares.

The proceeds, the company said, would be used to fund its power projects and expansion in India.

Ahmedabad-based Adani Power is set to open an IPO of over 300 million shares on July 28 and hopes to raise about $680 million. The company is building two power plants with a capacity of 6,600 megawatts in western India.

Energy companies could raise about $3 billion this year, Angel Broking said, as utilities build power plants to bridge huge shortages. Peak-hour electricity shortfalls are estimated to reach 12.6 per cent in 2009-10 from 11.9 per cent last year, the Central Electricity Authority said.

Big companies reporting earnings this week include Reliance Industries, Bharti Airtel, ICICI Bank, Oil and Natural Gas Corp and Maruti Suzuki.

- The writer is a journalist based in India