News: 'Indian share slide offers chance to buy'

(RTR 22/05/2006) Mumbai - A 22 percent slide in Indian shares over the past eight sessions poses a buying opportunity for long-term investors who are willing to stomach short-term risks, fund managers said on Monday.

India's economy, Asia's third-largest, has been expanding at about 8 percent annually for the past three years and there was nothing to suggest that growth will slow this year, they said.

"If I have 100 rupees, I will invest 10 rupees now. There are opportunities for the long-term investors in this market," said Ved Prakash Chaturvedi, chief executive of Tata Mutual Fund, which manages $2.4 billion.

India's main stock index fell more than 10 percent to a three-month low of 9,826.91 points on Monday, halting trading for an hour, as brokers dumped stocks to meet margins requirements of their clients.

When trading resumed, the market rebounded after Finance Minister Palaniappan Chidambaram said the banks would step in to help investors for margin calls.

Margins are part of the value of securities paid to brokers by investors before they purchase stocks.

When there is a depreciation in the value of stocks held in the name of investors, brokers seek more money or sell the shares to offset the depreciation in the value of securities.

The BSE index, which had slid more than 22 percent at Monday's low from an all-time high of 12,671.11 on May 11, retraced some of the losses to end 4.18 percent lower at 10,481.77.

The sharp correction was triggered last week by a sell-off in metals globally and sales by foreign funds concerned over rising interest rates and some earnings disappointments.

"All the bad news have come together," said Sashi Krishnan, chief executive at Cholamandalam Mutual Fund. "The metals crash, rising interest rates, tax issues and some earnings disappointments."

A proposal to tinker with the way stock trading has been taxed led to panic. But the government said that overseas funds would not be affected by the planned changes.

Quarterly earnings from India's top lender, State Bank of India, and the largest truck-maker Tata Motors Ltd. had also come in below analysts' expectations.

RISKS AND REWARDS

Fund managers said short-term risks to the Indian market included further forced sales to meet margin requirements, extended declines in global metals and a sell-off in emerging markets due to concerns over rising interest rates in the United States.

Other concerns are an expected increase in domestic fuel prices and the June-September monsoon, which is crucial to the performance of the farm sector that contributes a fourth of the gross domestic product.

Though the market had posted its biggest-ever one-day point loss at the day's low on Monday, many analysts believe the latest sell-off was due to the temporary mismatch between cash availability and the demand for margins.

"This was expected after what happened on Thursday and Friday," Chidambaram said. "Ample liquidity is there to meet margin calls."

"I still believe that, longer term, India offers attractive opportunities," said Antoine van Agtmael, president and chief investment officer at Emerging Markets Management LLC.

"The current correction is a very healthy one. Investors will find that painful, but for the longer term this is very healthy."

Rashesh Shah, chief executive at Edelweiss Capital, said, "it is near the bottom. The correction has got a bit stretched."

"...9,000 to 11,000 is a good range to have a re-look at the market for those who have been on the sidelines waiting to invest," Cholamandalam's Krishnan said.