Mumbai: Indian fund managers are evenly split over the direction of the stock market given rising valuations and the likely impact of Dubai’s debt crisis, at a time when economic recovery is giving some of them a reason to stay invested.
Three of the 10 fund houses that responded to the Reuters Asset Allocation Poll conducted between 26 November and 30 November said the benchmark index could drop up to 10% over the next three months. Two said it could fall over 10%.
The fund managers, most of whom were polled on Friday, were responding in the backdrop of a rattled Indian market after Dubai said two of its flagship firms planned to delay repayment on billions of dollars of debt.
Others, however, shrugged off a 3.8% drop in domestic shares during mid-day trade on Friday as an over-reaction and said local shares could rise up to 10% in three months as a strong economic rebound boosts corporate earnings.
“In terms of the quantum, $59 billion worth of debt to be restructured is nothing compared to $65 billion which Madoff simply evaporated,” said Sanjay Sinha, chief executive of DBS Cholamandalam Asset Management.
“In absolute terms, it’s not an earth-shaking amount,” he said, referring to Wall Street fraudster Bernard Madoff who was arrested last December for running an estimated $65 billion Ponzi scheme. Madoff is serving a 150-year prison sentence.
Half of the poll respondents said they would raise cash in their portfolios, while the remainder said they would maintain or increase bets on equities.
Indian diversified funds, the biggest category of equity funds by number and assets, held 7.4% of their corpus as cash at the end of October, data from fund tracker ICRA showed.
A majority of fund managers also said they would raise bets on relatively riskier mid-cap stocks on growing confidence in the domestic economy and prospects of stronger corporate earnings growth in the third and fourth quarter of 2009-10.
Four fund managers said they would raise their bets on growth sectors such as basic engineering and construction.
“As far as India is concerned, we are on the growth path,” said David Pezarkar, head of equity at Shinsei’s Indian mutual fund unit.
Data on Monday revealed India’s economy grew by 7.9% in the quarter through September from a year earlier, shattering forecasts, as stimulus measures boosted demand and manufacturing activity surged.
Six fund managers said they would raise their bets on consumer non-durables, which made up 8.1% of diversified equity fund assets at October-end.
The sector could emerge as one of the strongest investment themes as rising income levels and faster economic growth raise consumption, M. Venugopal, head of equity at Tata Mutual Fund, said in a recent interview.
“India is on the threshold of very strong growth in terms of consumption,” he said.
Five fund managers said they would raise bets on healthcare stocks, giving a boost to rising investments in the sector which accounted for 6.9% of diversified fund assets in October.
Bond funds, which maintained an average maturity of 3.59% at the end of October, may cut their portfolio maturity in the next three months, the poll showed, as fixed income fund managers bet on an interest rate hike, given rising inflation and a pick-up in economic growth.