Mumbai: Indian shares may gain 15-25% in the next 12 months backed by earning upgrades, pick-up in the capital expenditure (capex) cycle and growing signs the global economy is on the mend, a top fund manager said. While a 10-15% correction was a possibility, stocks will not drop to 2009 lows hit in early March as every dip would attract investors sitting on the sidelines, David Pezarkar, head of equity at Shinsei’s Indian mutual fund unit said.
“Small corrections apart, I would say market continues in the upward trajectory,” said Pezarkar, whose firm will launch its first equity fund in India next week.
“It doesn’t look like we will see some shocking kind of changes happening. Plus, globally I think a lot of economic indicators will turn positive over the next six months and that will surprise a lot of people,” he said.
The fund manager recommended investing in sectors such as auto, technology and metals, where he sees a bounce-back in the short-term, but prefers infrastructure as a long-term bet.
Indian stocks have staged one of the best comebacks in the world this year, rising more than 85% from a low hit on 6 March. They now trade at nearly 17 times their forward 12 months earnings from close to nine times in March.
While a surge in valuations was making many investors wary, Pezarkar said they were sustainable and would get a boost as economic activity picks up going ahead, and could spark faster earning upgrades, mainly in 2010-11.
Fears companies might apply the brakes on their capex spending because of a fund crunch or lack of demand had subsided.
“Now it seems at least the announced capex, which was under threat of not happening, at least that, will happen,” he said.
Pezarkar, who managed about $2 billion for insurer Bajaj Allianz before joining Shinsei in October last year, said the government’s thrust on infrastructure and stimulus targeted at raising consumption will boost economic activity.
Output of India’s infrastructure sector, which accounts for a little over a fourth of industrial output, grew 6.5% in June from a year earlier, higher than an unrevised 2.8% in May, government data showed on Thursday.
Stake sales in state-run firms should add strength to the rally in Indian shares, said Pezarkar. He forecast a pick-up in inventory levels, where the drop outstripped the fall in sales on fears the global economic woes would linger for 3-5 years.
“If things stabilise then companies will have to build their inventories,” he said, adding production, exports and trade figures should also see a sharp bounce-back.