Shares in India should see more consolidation in the coming week as large investors, led by foreign and domestic funds, juggle their portfolios by taking profits in some growth stocks and funnel cash into less fancied stocks with better potential. The guiding principle in the churn is the runaway rise in prices over the past year, which market pundits believe need a bit of cooling.

Indian equities have topped the global charts with a 30.4 per cent return over the past year, and are the second best performer in the past three months at 12.5 per cent behind Russia at 16 per cent, according to a Bank of America report earlier this week.

Having scaled a series of record peaks, the top-30 Sensex and the broader 50-share Nifty are showing signs of fatigue, largely because of uncertainties about when corporate earnings would catch up with expectations. Company results that will start to flow from the second week of April are unlikely to be flattering, with manufacturing activity still weighed down by sluggish demand.

This was also why the rebound was short-lived after the US Federal Reserve calmed market nerves by putting to rest any immediate rate rise. The Sensex ended down 0.85 per cent this week at 28,261.08 and the Nifty shed 0.9 per cent to 8,570.90. Both the indices are expected to remain under pressure ahead of the expiry of March derivative contracts on Thursday.

However, stocks upgraded or added by FTSE Group effective March 23 will be in focus as fund managers get more leeway to raise their holdings. These include auto components maker Bosch India, Yes Bank, Eicher Motors, Motherson Sumi Systems, Zee Entertainment Enterprises, Godrej Consumer Products, Aurobindo Pharma, Shree Cement and Cadila Healthcare to large cap from mid-cap in FTSE’s Asia Pacific ex-Japan index.

FTSE also upgraded consumption-related stocks Pidilite Industries, Britannia Industries and Marico to its mid-cap series from small-cap. The upgrades have a potential to attract additional foreign portfolio investments of more than $150 million (Dh550.9 million), according to brokers.

Bright spot

Despite the muddy earnings outlook, the reason why shares are holding up is because of the big potential that India offers. Even after taking some profits off the table, net foreign portfolio inflow into equities since the start of January tops $5.5 billion, the most among emerging markets, underscoring the faith that investors repose on India.

International Monetary Fund (IMF) managing director Christine Lagarde, who visited New Delhi this week, said that India was a rare bright spot on a cloudy global horizon and termed a global recovery as “too slow, too brittle and too lopsided”.

Nonetheless, she stressed that for India to achieve her potential the administration must reform archaic labour laws and ease land acquisition other rules that impair investment and doing business. The IMF expects India’s GDP to expand 7.2 per cent in the fiscal year that starts on April 1, compared with the global rate of 3.5 per cent for 2015.

“In this cloudy global horizon, India is a bright spot,” Lagarde said. “As India grows and takes its rightful place in the global economy, the focus should remain on sound policies and inclusive institutions.”

The first woman chief of the IMF also called for measures to encourage private investment in infrastructure, which include removing regulatory uncertainty and bureaucratic red-tape.

“These issues are on the radar of policymakers, which is promising,” Lagarde said. “They must be on the action list.”

Bumpy road

This is easier said than done. Disparate opposition has stalled, or caused much delay, to growth-oriented policies by the new administration.

It took 10 months for Prime Minister Narendra Modi’s government, which rode to power last May, to get two crucial bills through parliament. The Mines and Minerals Development and Regulation, and Coal Mines Special Provisions, bills were passed on Friday — paving the way for auctions of mines such as coal, iron ore and bauxite.

The coal bill will allow the administration to go ahead with public auctioning off mines that started last month after a Supreme Court ruling. The auctions have brought a windfall of more than Rs1 trillion to the government, and more importantly put an end to arbitrary allocation of the natural resource to crony capitalists.

It also opens up the possibility of allowing private companies to mine commercially, ending the monopoly of state-run Coal India Ltd. In other words, the new policy will allow private investment, including by foreign companies, in this vital sector that is at the centre of India’s energy development.

The same holds true for the minerals sector, which was hit by a spate of illegal allocations and political corruption charges, halting the issue of new permits to mine iron ore. The problem held up South Korean POSCO’s plans to build a large steel plant in India.

Stake sales

Junior Finance Minister Jayant Sinha said on Friday the government could raise Rs225.74 billion rupees from part sale of government holdings in four state-controlled companies, including Oil and Natural Gas Corp, National Aluminium Co Ltd and Bharat Heavy Electricals Ltd.

Although he did not say when the sales would happen, it is unlikely to do so before the financial year ends on March 31.

Credit: The writer is a journalist based in India