Mumbai: Vipul Mehta, manager of the second best performing India offshore fund in the past year, is betting on energy-related stocks to lead a recovery in equities from the worst start to the year in at least three decades.
Mehta increased his holdings of Reliance Industries Ltd and its unit Reliance Petroleum Ltd before the Mumbai-based group starts production from the nation’s biggest gas field, and completes the world’s largest refinery this year. He’s shunning cement and steel stocks as the government curbs prices and exports of these commodities to tackle inflation that is at a three-year high.
“We are seeing an exact reversal of sentiment from the excessive optimism at the highs in January to the excessive pessimism we are witnessing now,” Mehta, 35, who oversees about $1.6 billion (Rs6,384 crore) in Indian equities as senior portfolio manager at Nomura Asset Management Singapore Ltd, said on 17 April. “Earnings growth of 20% over the next three years will be the biggest driver for markets to move higher.”
Profits from companies led by Reliance Industries, which reported earnings on Monday, may help the Bombay Stock Exchange’s benchmark index, the Sensex, recover from the biggest first-quarter decline since the benchmark was created in 1979.
Stocks worldwide have tumbled on concern that asset write-downs and credit losses at the world’s largest financial institutions may reach $1 trillion, according to the International Monetary Fund.
Mehta’s Tokyo-based $1.2 billion Nomura India Stock Investment Fund generated a 39% return in the past year, the second best performer among 15 offshore equity funds with more than $1 billion in assets in India, according to Bloomberg data. It was only beaten by the $1.3 billion PCA India Infrastructure Stock Fund, which returned 52%.
Nomura, Japan’s biggest brokerage, has garnered 1.47 billion yen (Rs57.33 crore) from investors in Japan for the fund this year, compared with a 59- billion-yen outflow in the six months to November 2006, the last time the Sensex entered a bear market.
Reliance Industries, the third best performer on the Sensex last year, is the fund’s top holding. Reliance, which owns the world’s third biggest oil refinery, may produce 50% more natural gas from India’s biggest field than the company estimated, the nation’s oil and gas regulator said this month.
Mehta also raised his investments in Aban Offshore Ltd and Cairn India Ltd as oil and gas discoveries boost their stocks. Cairn India, the local unit of Cairn Energy Plc., raised the projection of oil output from its biggest area by 17% to 175,000 barrels a day.
Mehta says he saw the potential of the rigs business before a global shortage pushed rental rates to a record. Aban shares have risen more than sevenfold since Mehta started buying the stock almost three years ago. Mehta has switched to selling state-run banks on expectation that rising inflation will deter the Reserve Bank of India from cutting rates over the next six months.