News: 'Foreign investors still bullish on India'

(BS 28/06/2006) Mumbai - The stock markets may be going through turmoil in the short run but thanks to the long term growth story foreign investors are still looking at India positively, said Arshad Zakaria, president and chief executive officer of New Vernon Capital and former Merill Lynch honcho.

A private equity and hedge fund managing large sums of money for long term institutional investors such as endowment plans, pension funds and investment trusts, Zakaria said, "We have received no phone calls yet (for redemption). Though the recent selloff appears big, on a year-to-date basis, it is the not as big long-term investors are still optimistic about India."

Addressing an august audience of professional investors gathered at a meet organised in downtown Mumbai by domestic securities firm Motilal Oswal in which New Vernon has recently acquired a stake, Zakaria said India is poised the way the US was in the early eighties.

Though certain concerns such as infrastructure, fiscal and current deficit will have to be addressed over time, the growth prospects looked bright for corporate India.

Referring to the sharp correction seen of late, Zakaria said the period from 1982 to 2000 turned out to be the best period for the US markets despite the crash of 1987, when the market fell 22 per cent on a single day.

Three factors -- secular decline in interest rates, healthy corporate earnings growth and multiple sources of liquidity -- drove the US stocks during the secular bull run.

As long as these three ingredients are intact, Indian markets had a fairly good chance of replicating the same growth, he suggested.

Having said that, "India will not be immune to any change in global factors" but if the global environment remains reasonably stable, India should be firmly on the growth path.

Besides, dollar investors were currently looking at other currencies for diversification. This was working in favour of Asian markets including India.

"Since high teens in early eighties interest rates had fallen to 3 per cent in 2000 in the US. Though there were ups in between, the market performance was maintained as the secular trend in interest rate was downwards," he said.

Similarly, despite business cycles during the period, corporate earnings grew steadily backed by lower cost of capital and productivity gains. Different sources of liquidity, particularly the emergence of mutual funds and 401k plans provided the impetus for further growth.