By Anil Varma and M.C. Govardhana Rangan
Nov. 24 (Bloomberg) -- Mark Mobius is leading a return of fund managers to India as the nation's biggest banks say demand for cars and homes will help them ride out a global recession.
``Domestic industries can build high profits and growth,'' Mark Mobius, 72, who manages more than $24 billion in emerging- market assets as executive chairman at San Mateo, California- based Templeton Asset Management Ltd., said in a Nov. 22 interview. He is buying Indian consumer-related stocks.
Bulls on India were clobbered this year as the rupee fell 21 percent to a record and the Sensex stock index slumped 57 percent. Executives at Mumbai-based State Bank of India, the nation's biggest lender, and Housing Development Finance Corp., the largest mortgage firm, said investors ignore the potential for interest-rate cuts and rural spending to fuel demand.
Finance Minister Palaniappan Chidambaram predicted last week economic growth will ``bounce back'' to 9 percent next year, from at least 7 percent this year, driven by record crop plantings, public sector pay increases and tax breaks. The International Monetary Fund in Washington said this month that India may expand 6.3 percent in 2009, the fastest after China among the world's 20 biggest economies.
Sustained expansion in the world's second-most populous nation would help lift 456 million people out of poverty and underpin the shrinking economies of Japan, Europe and the U.S.
Scope to Cut
Domestic consumption accounts for more than 55 percent of India's economy, compared with 37 percent of gross domestic product in China. Chidambaram, 63, said in a Nov. 18 interview that the central bank has scope to cut borrowing costs as inflation slows to a level ``we can live with.''
India is adding 100 kilometers (62 miles a day) of new roads under a $27 billion construction program, bringing urban markets within reach of 60 million farmers in the past five years. Even Detroit-based General Motors Corp., seeking a U.S. government bailout, is hiring 500 workers as Indian car sales, which fell the most in three years last month, ``should improve,'' said P. Balendran, a vice president at the local unit.
``My rural business is growing faster than my urban business,'' State Bank Chairman Om Prakash Bhatt, 57, said in a Nov. 18 interview. ``The psychology and the expectation of the people have changed. They are looking for a better life, they are actually enjoying a better life.''
Lehman Fallout
State Bank plans to hire 25,000 staff and open 2,000 branches in year ahead, Bhatt said. Housing Development Finance, or HDFC, predicts lending will increase more than 20 percent, Managing Director Keki Mistry said in a Nov. 19 interview.
Templeton, Aberdeen Asset Management Ltd. and F&C Management Ltd. are buying Indian stocks as strategists predict a rebound in the rupee, after it fell 8 percent since Sept. 15 to 50.04 per dollar. That's when the bankruptcy of New York- based Lehman Brothers Holdings Inc. caused credit markets to freeze, prompting investors to hoard cash and pare investments in everything but the safest government securities.
The median forecast of 17 strategists in a Bloomberg survey is for the currency to strengthen to 48.3 by the end of June.
``We are positive on India,'' said Devan Kaloo, who overseas $30 billion as head of global emerging markets in London at Aberdeen, Scotland's biggest independent money manager. ``The key drivers for growth are domestic, with the prospect of rates coming down sharply into 2009.''
`Infrastructure Problem'
Kaloo and Mobius are buying after many global funds gave up on the market. Overseas investors turned net sellers of Indian equities this year, dumping a record $13.4 billion, according to data provided by the Securities and Exchange Board of India. They bought a record $17.4 billion in 2007.
``I am not a huge believer in the Indian story,'' said London-based Steen Jakobsen, who manages $150 million as chief investment officer at Saxo Bank A.S., a Danish Internet trading bank. ``It has a huge infrastructure problem.''
Steel Authority of India Ltd. of New Delhi, the nation's second-biggest producer, said this month it may lower output as construction companies delay projects. Bangalore-based Infosys Technologies Ltd., India's second-biggest software services provider, cut its profit forecast in October. Mumbai-based ICICI Bank Ltd., India's second-largest bank, suffered a run on deposits last month as its funding costs surged.
India's interbank overnight lending rate soared to a 19- month high of 19.5 percent on Oct. 31 even as the central bank cut its benchmark rate by 1.5 percentage points in two weeks to 7.5 percent. The benchmark has since dropped to 6.55 percent as the central bank pumped cash into the financial system.
Expansion Plans
Slowing global growth may benefit India by giving the Reserve Bank of India ``scope'' to cut rates after crude-oil prices tumbled 60 percent in four months, Mobius said. India is a ``very large market'' that isn't highly linked to the global economy, he said.
Inflation, which cooled to 8.9 percent from a 16-year high of 12.91 percent in August, will slow to 5 percent in June, HDFC's Mistry predicts. Fair value for the rupee would be between 40 per dollar and 44 within 12 months as India's trade deficit narrows, he said.
``Inflation is behind us,'' said Mistry, 53. ``Over one to three years, I am extremely bullish on Indian stocks.''
State Bank's Bhatt predicts the currency will appreciate to 45 next year because 80 percent of foreign funds have already left the stock market. India has ``huge pent up demand'' should housing prices and mortgage rates fall because 90 percent of households can't afford to buy a home, he said.
A drop in India's home loan rates to below 10 percent, from as high as 14 percent, will ``kick-start consumer buying,'' ICICI Chief Executive Officer K.V. Kamath, 61, said in a Nov. 17 interview.
Credit-Default Swaps
The cost to protect bonds of ICICI from default fell to 875 basis points from a record 1,794 reached on Oct. 27, according to CMA Datavision prices. A basis point, or 0.01 percentage point, on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates deterioration in the perception of credit quality; a decline signals the opposite.
``India will survive the crisis,'' said Sergey Dergachev, an emerging-market money manager at Union Investment in Frankfurt, which has $233 billion in assets. ``Growth will weaken, but India will be in much better shape than many other much more open economies.''
Buying Rupees
He bought rupee forwards, or contracts that allow for the purchase of the currency at current prices for delivery at a specified time and date.
Indian banks have about $1 billion of foreign-currency securities tied to failed or stressed institutions, including bankrupt Lehman, out of total debt assets of $510 billion, according to central bank estimates. That contrasts with almost $1 trillion in writedowns by financial institutions worldwide.
ICICI's capital stands at about 14 percent of assets, compared with the 8 percent recommended by the Bank for International Settlements in Basel, Switzerland.
``The Indian financial system got cleared up five years back and thereafter has not ventured into anything which should cause worry,'' Kamath said.
State Bank of India and HDFC are in ``pretty good shape'' to expand lending, said Jeffrey Chowdhry, who manages $2 billion as head of emerging-market equities in London at F&C. After slumping 74 percent this year, ICICI trades at 0.8 times its book value, compared with 1.1 times for Bank of China Ltd., the nation's fourth-biggest lender.
``We are like kids in a candy shop,'' Chowdhry said. ``We can see lots of companies that we want to be buying at this level on a two to-three year view because we know we'll make a lot of money.''
To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; M.C. Govardhana Rangan in Mumbai at grangan@bloomberg.net
Posts
No comments:
Post a Comment