Foreign funds may plough more money into Indian stocks in the next few months, say analysts, as the outlook for Asia's export-driven 'tiger economies' is marred by the war in Iraq and a killer virus that threatens growth.
Money managers say India's huge domestic market, second only to China in the region, puts the country in a better position to ride out the turbulence in global trade.
"We believe India will be among the few stable economies in Asia, less immune to a global slowdown due to the war," said Tan Choon Hoe, a portfolio manager with AIB Govett (Asia) Ltd.
The government has projected India's economy to expand 6.0-6.5 per cent this fiscal year which began on April 1, from an estimated 4.4 per cent in the past year when growth was affected by drought.
Despite being among the world's worst performing stock markets in 2003, offshore funds have pumped in $359 million into Indian shares in the first quarter -- well above the $54.5 million into Thailand, and outflows of $224.7 million from South Korea in January and February.
And the inflows could pick up further as a deadly flu-like virus, known as Severe Acute Respiratory Syndrome or SARS, threatens to hurt consumer spending and economic growth in China, Hong Kong, Singapore and elsewhere in the region.
"If it (the disease) is not contained soon, some money could flow into Indian markets," said London-based Tim Dickson who manages about $200 million in Indian equities for F&C.
Based on the potential impact
"Valuation is a key driver," said AIB Govett's Tan Choon, whose fund is currently underweight on Indian equities.
And many analysts say the relative cheapness of Indian stocks during such turbulent times is likely to be a big draw for investors.
The Bombay Stock Exchange's Sensex has lost 6.2 per cent in 2003 and trades at about 14 times 2002 earnings, the lowest in the past five years.
And the dividend yield of 2.21 per cent is the highest in a decade, according to BSE data.
Brokerage DSP Merrill Lynch expects the Sensex to climb to 3,750 by year end - up 18.4 per cent from Friday's close of 3,167.70.
As for stock picks, portfolio managers recommend banking, pharmaceutical and those shares that will benefit from the government's focus on infrastructure projects.
"We are overweight on financials as the home mortgage story continues to be strong," said Singapore-based Devan Kaloo, a fund manager at Aberdeen Asset Management, which oversees about $2.2 billion in the region.
He also liked cement producer Grasim Industries and power equipment maker Asea Brown Boveri.
Tan Choon also gave the thumbs up to the banking sector saying an expected surge in consumer loans would drive profits while a recent law would help banks tackle bad loans.
"We are also bullish on the pharma sector," he added.
