News: Foreign investors in go-slow mode

(TT 23/05/2006) Mumbai - Foreign institutional investors (FIIs) appear to be getting wary of Indian shares, while it continues to swoon over the charms of scrips in China.

“We had re-rated the Asian and the emerging markets at the beginning of the month and had gone underweight on the Indian markets,” said Adrian Mowat, chief Asian equity strategist, JP Morgan Chase. However, the foreign brokerage continues to be overweight on China.

Morgan also went bearish on Indonesia, Malaysia, Australia and Central Europe, while being upbeat on Taiwan, The Philippines, Singapore, South Africa and Turkey.

“While we have probably seen the worst in the Indian markets, it is going to be several months before we see an uptrend. We expect reasonable volatility in the markets. However, we believe that it is far too late to be selling ... the relative valuations which still remain attractive provide an opportunity to acquire stocks. A fair value of sensex would be 11000 by December,” said Mowat.

FII top gun CLSA had said yesterday that Indian shares were still at a premium compared with the Asian markets even after the hammering of the bourses over the past week. With F& open interest still high, volatility is expected in the near term.

However, stocks with strong fundamentals offer attractive entry points. These stocks include HLL, Cipla, Maruti, Wipro and Bhel.

Mowat said the fundamentals were still intact and the driving force would be corporate earnings which was expected to clock growth rates of 15-20 per cent.

“Going forward, the Indian markets shall get it cues from the domestic investors in line with the markets of South Africa and Russia where the domestic inflows constitute large part of the total inflows in the equities,” he added.

Morgan in a report had said the medium term economic outlook on India among investors ranged from ‘bullish’ to ‘super bullish’.

“The Indian economy has grown around 8 per cent annually in the last three years, driven in large part by higher consumption by a more prosperous and growing middle class. Growth is likely to be at least 7 per cent annually over the next few years, although faster implementation of economic reforms and improvement in physical infrastructure could result in even faster growth rates,” said Siddharth Mathur, strategist, JP Morgan.

“While the domestic investors can look at IT and pharma stocks, we like select banking and cement stocks. Though the Indian IT companies are some of the best managed companies in the world, they are dependent on the US markets, which might have some reflections on their income,” said Mowat.

Meanwhile, FIIs were net sellers to the tune of Rs 929.80 crore yesterday. Their net outflow in the past eight sessions was Rs 5,967.50 crore.