Mumbai: Indian equities shrugged off disappointing earnings from technology bellwether Infosys Technologies Ltd and a ratings downgrade for Portugal to close at a 29-month high.
Fund managers and analysts remain bullish about share prices crossing new highs in the next 12 months, citing rising foreign inflows, good monsoon rains and robust economic growth, though global economic events could cast a shadow.
On Tuesday, the Sensex, India’s most watched stock gauge on the Bombay Stock Exchange, closed 0.27% up at 17,985.9 points, a level last seen in February 2008. The broader 50-stock Nifty of the National Stock Exchange closed 0.33% at 5,400.65.
Graphic: Yogesh Kumar/Mint
This happened despite Infosys’s share price slipping 3.4%, its worst loss in more than a year, after the company said net profit for the June quarter fell 2.4% from a year ago to Rs1,490 crore. Infosys has a 9.7% weight in the Sensex and 8.59% in the Nifty.
“There are several positive factors emerging for the economy and markets,” said Suresh A. Mahadevan, managing director and head of research at UBS Securities India Pvt. Ltd. “The fundamentals are much stronger now than 18 months ago.” He cited the better fiscal position, corporate earnings, normal monsoons and government reforms as factors boosting investor sentiment.
India’s fiscal deficit is expected to reduce more than the 5.5% the government budgeted for due to better-than-expected telecom spectrum auctions. The latest data released by the India Meteorological Department indicates rainfall deficiency for the season narrowed to 10% below normal till 7 July, from 16% in the previous week.
UBS has a 22,000 point target for the Sensex by March 2011, a view shared by some other brokerages.
“We expect the Sensex to surpass its previous highs over the next 12 months,” wrote Pathik Gandotra, Sameer Bhise and Kavita Kejriwal of IDFC Securities Ltd in an end-June note. “Rising capacity utilizations, improving business confidence and policy thrust on infrastructure are expected to translate into a capex uptick over financial year 11-12—a propeller of economic growth.”
With foreign institutional investors buying $8 billion (Rs37,520 crore) worth of stocks this year, Indian equities have outperformed peers such as China and Brazil. The Nifty has risen 3.84%, compared with a 25% fall in the Shanghai Composite Index and an 8.21% drop in Brazil’s Bovespa. This category of investors had pumped in a record $17.64 billion the previous year, helping the Sensex gain some 80%.
“A net 34% of global asset allocators are overweight GEM (global emerging market) equities, up from 19% in May,” said a Bank of America Merrill Lynch global fund manager survey for June. “A net 48% of investors identify GEM as the region they would most like to overweight over the next 12 months, more than double the reading in May.”
However, local fund managers, some of whom are holding as much as 10% of their equity assets under management as cash, are a bit more cautious.
“A relief rally in global markets, adequate cash levels with domestic institutions and good monsoons are providing the short-term trigger,” said S. Naren, who helps manage some Rs73,795 crore at ICICI Prudential Asset Management Co. Ltd. “In the medium run, you need to have normalized global markets.”
European stocks have rallied in the past couple of weeks as fears of a Greek debt default receded and risk appetite returned.
Still, despite a nearly $1 trillion bailout package, European Union countries are introducing austerity measures to curb debt, thus crimping economic growth and spooking markets worldwide.