MUMBAI: India’s nearly four-year bull market and 9% economic growth are fuelling unrealistic expectations for some investors, JP Morgan’s top India executive said.
“I think the level of expectation in certain areas of the Indian market may exceed the outcome,” said Dominic Price, who set up JP Morgan’s office in the country 10 years ago and has been based in India ever since.
“Obviously, there are areas which will exceed expectations, but I would say the level of expectations in certain quarters of the local and international investment community is so high that I have a concern that there will be some disappointment,” Price said at the firm’s offices, which were undergoing renovations.
India’s top share index soared to a record 14,723.88 on 9 February but fell 16% to a five-month low on 5 March and closed at 12,415.04 after a global sell-off triggered by China. In May 2003, the benchmark was less than a quarter of its current level.
“I am fundamentally bullish about the Indian market, but just because one is bullish, it doesn’t mean it’s going to be a nice ride all the way to wherever the market could go over time,” said Price, a Briton born in Vietnam, who has spent much of his childhood in India. Price said the recent global markets’ sell-down signalled the growing influence of Asian giants China and India.
The late February plunge was triggered by a 9% drop in the Shanghai market. Indian shares were among the hardest hit as investors fled riskier assets.
“I think what is notable about the recent correction is the influence that China had on the market, and I think that reminds you that China and India may become leading indicators, rather than the secondary indicators in some global moves,” he said.
India’s 9% economic growth and a thriving corporate sector that has recently pulled off three multibillion-dollar mergers have attracted global attention and rising investment by foreign funds, driving stocks to record heights.
That growth, as well as big corporate deals such as Tata Steel’s recent $12 billion (Rs598 crore) takeover of Corus Group, has spawned intensified competition among investment banks who are beefing up their operations in the country, with already-narrow fees facing increasing pressure.
Bankers argue that the growing pool of deals more than offsets shrinking fee rates.
JP Morgan, ranked seventh in Indian investment banking revenue last year, has moved up to fourth so far this year through 9 March, according to Dealogic figures.
Even after the 16% correction, the Mumbai market was still 39% higher than what it was on 14 June, and foreign funds had invested a net of $1.1 billion in Indian equities this year up to 8 March, according to the latest data available from the market regulator.
The Mumbai market’s main index has recovered about 4% since 5 March, but trading has been volatile, and Price said the market was unlikely to steady soon.
“There is a chance of some volatility at least in the short term,” he said.