Mumbai: Most Indian fund managers are not enthused by the recent spurt in shares and are in no hurry to cut cash levels ahead of a general election in April-May, but see bargains in metal stocks, a Reuters poll showed.
India’s benchmark stock index raced above 10,000 levels for the first time since 7 January on Thursday and a majority of those polled between 24 March and 27 March said stocks were fairly valued and set to rise further in the next three months.
But five of the eight fund houses said they were looking to maintain or raise cash levels, at a multi-year high in February.
“This is a liquidity-driven rally. It has nothing to do with fundamentals,” Jayesh Shroff, who manages about $1 billion in equities at SBI Funds Management, said.
“I am participating. I am being opportunistic but fundamentally I am not convinced,” he added.
After slumping more than 50% in 2008 and losing during most part of this year, Indian shares have moved up of late, helped by a net investment of almost $620 million by foreign portfolio managers since mid-March.
But the caution remains, with only three of the eight respondents willing to start betting on stocks, and restricting investments to mainly liquid large-cap stocks, the poll showed.
Favourite sectors such as financial services and engineering, that controlled about 28% of the assets of diversified equity funds at the end of February, are unlikely to see any major buying but interest is picking up in metal stocks.
Five of the eight fund houses polled said they would raise metal exposure, while only one said it would cut holdings.
“It looks like the worst expectation is more or less over and things should slowly start picking up and valuations are extremely attractive,” I.V. Subramaniam, chief investment officer of Quantum Advisors Pvt Ltd, said.
Indian metal shares lost almost three quarters of their value last year as investors dumped their holdings on a slowing global economy. Shares are up about a tenth this year on revival of interest.
Domestic diversified equity funds held 4.1% of their assets in metal stocks at end-February, up from a 2008 low of 3.5% hit in November, data from fund tracker ICRA showed.
Shares in energy firms, which constituted 14.5% of the assets of equity funds, should also attract buying interest in the next three months with half of the poll respondents looking to raise exposure, given strong cash flows and expected volume and earnings growth for energy firms in 2009.
“If you need to play certainty into the next couple of years, if you need to play predictability, this is the only place we have volumes stepping up,” Kenneth Andrade, head of investments at IDFC Asset Management, told Reuters earlier this month.
Some balance fund managers are also looking to cut equity exposure and boost cash and bond holdings in next the next three months, while bond fund managers remain divided on concerns of higher-than-expected borrowing plans of the government.
Government borrowing for the financial year that begins on 1 April is set to hit a record Rs3.62 trillion, after it doubled to 3.06 trillion in 2008-09.