Fund managers see turning point in Indian equities with new Minister of Finance
22 October 2012
News, Asia, India
By Toby Garrod
Fund managers say the reappointment of Palaniappan Chidambaram as Finance Minister of India bodes very well for equity market investors, following an extended spate of negatives that have hurt the mammoth economy in recent years. Mr. Chidambaram is expected to harness key economic trends with new policies to lure international investors back into the markets.
“The strongest signal that the government has sent regarding the overhaul of the economy is the change of guard at the Ministry of Finance,” says Praveen Jagwani, CEO of UTI International (Singapore). Chidambarum is loved by the international investment community and is seen as a developmental economist by the International Monetary Fund and World Bank. He has done the job twice before, and on each occasion he put the country back on track for growth.”
Since taking office, the minister has unleashed a series of reforms that the government was previously struggling with, such as opening up the country to foreign direct investments in aviation, insurance and multi-brand retail, that have been warmly welcomed both onshore and offshore. Meanwhile, he has reduced the domestic diesel subsidy by a third, which is expected to help the fiscal deficit, say market players.
Such positives mean the equity market, which up till recently had suffered mismanagement issues along with much of the rest of the economy, is now undervalued, says Rana Gupta, senior portfolio manager, Indian equity, at Manulife Asset Management in Singapore.
“Previously the government wasn’t really doing anything. Policy reforms were lacking, while the fiscal deficit, the trade deficit and inflation were all high. Given the new policies of the Ministry of Finance, the markets are currently cheap,” he says. “Directionally speaking, from here till March we expect to see rates cut by around 75 basis points. Meanwhile, the banks have said that if the central bank cuts rates, they will cut deposit rates, which will further support the markets going forward. We expect to see the economy improve in six to nine months, leading to earnings upgrades. Now is the time to invest.”
The recent stock market performance is testament to the changing attitudes toward the market.
“Three months back nobody in the investment community was talking about India,” says Nitin Jain, principal investment manager at Kotak Mahindra (UK) in Singapore. “It was all about Europe and China. But now it’s very different. India has outperformed all countries in the region. The National Stock Exchange has risen 23% year to date, in US dollar terms, while China has been negative to languishing.”
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