FIIs ring India in troubled times

With the US and Europe still recovering from the financial recession and China being perceived as a potential bubble centre, India is likely to emerge, once again, as the investment destination. The Indian markets have also corrected 10-15% from their recent highs and with a huge USD 30 billion paper lined up, the country is once again visible on investors' radar. Positive industrial data, robust Q3 earnings, and the government's latest divestment drive and focus on reforms are huge plusses in drawing investments.

Why India?
The debt crisis in Greece, Portugal, Spain, and Ireland and a likely spin-off has shaken investor confidence in the region. The tightening of credit and curbs on bank lending has made investors betting on the Chinese story jittery.

Last year, the financial world received a rude shock when Dubai sought to delay payments on USD 59 billion debt. Investors which found the Emirate a safe haven during the global financial crisis were suddenly left in the lurch. This has left investors with a very few options.

Ajay Bagga of Deutsche Bank says India is a better bet than China any day. "China is looking at a huge overvalued market with government talking about stopping stimulus. In India, there will be a lot more measured stopping of stimulus. There are key kick-in factors like disinvestment which could bring some relief on the fiscal situation. Hence, the situation in India is better than in China where a huge stimulus of nearly 12% of GDP came in and there is going to be a pullback in bank lending." He expects the capex cycle to kick in by June-July in India. "The Chinese capex cycle is already over-heated. If anything, they will try to slow it down or otherwise they will let it run."

Similarly, Adrian Mowat, Chief Asian and Emerging Equity Strategist, JP Morgan, is still overweight on India and underweight on China. "The Indian market isn't more expensive than other emerging markets when you adjust for its high growth rate, adjust for its sector compositions and the quality of management."

Dr V Anantha Nageswaran, Chief Information Officer, Bank Julius Baer, sums up 'why India' the best. "Organic growth, private sector dynamism, and the so-called balanced economy between consumption, exports and investments is what's driving the India story."

India in 2010 and beyond:
Sunil Garg, MD, Head-Asia Banks and Financial Services, JPMorgan Securities, sees India as a stock picker's market. "This year is going to be a lot more about bottom-up stock picking and differentiating between companies and I do think that differences are arising." Andrew Holland, CEO-Institutional Equities and Equity Proprietary Trading, Ambit Capital, sees the Sensex trading in a 15,000-19,000 range in H1 2010, offering a huge upside to those investing on dips.

On a more fundamental note, Suresh Mahadevan, Head of Research, UBS Securities, says the Sensex has an earnings per share of Rs 1,125 in FY10, which is a good level to enter the market. Stephen Roach, Chairman of Morgan Stanley Asia, feels the story for India is very compelling one over the next several years. "Micros in terms of companies, labour force, and financial institutions remain very positive. Macros in terms of savings and foreign direct investment in infrastructure have improved a lot in recent years. The political constraints certainly don't look a lot more worrisome in the aftermath of the elections of last May. So, I am very encouraged by prospects in India."

What are they betting on?
Holland is betting mainly on IT, FMCG, and telecom. Among stocks, Reliance Industries remains a key stock to be held or bought. Holland is optimistic on real estate and banking for the first time. "Valuations will start to look more attractive. In real estate, commercial property is now starting to see some demand and there is a retail revolution happening. Shopping malls are going to be something that would be talking more and more about in future."

Mahadevan is bullish on Hindalco and Sterlite from the metals space, and Maruti, Tata Motors, and M&M from the auto space. He feels it is an interesting time to look at L&T.