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Prudential ICICI says Indian equities underpriced

Indian equity valuations, driven down by a global stock market slump, are quoting below their intrinsic worth despite a strong second-quarter performance by companies, fund manager Prudential ICICI has said.

"I would tend to believe the entire Indian equity market is underpriced," Dileep Madgavkar, chief investment officer at Prudential ICICI Mutual Fund, said.

India's most widely tracked index, the 30-issue Bombay Stock Exchange index, closed 1.59 per cent higher at 3,033.91 points on Friday but is down 7.0 per cent since the start of 2002.

The marker slipped to a year-low of 2,828.48 points in October following a sharp rise in net sales by foreign institutions who reacted negatively to a government delay in privatising two cash-rich oil firms, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd.

Stock prices have also been lacklustre since India faced its worst drought in 15 years which hit rural demand.

But Madgavkar said he believed most negatives had been priced into current valuations and stocks were likely to look up as investors digested better-than-expected July-September performance by several leading companies.

"We're very bullish on equity markets following good second- quarter results across sectors which themselves are a trigger for the markets," he said.

Madgavkar, who oversees 96 billion rupees in assets spread over 16 funds including six equity schemes, said his equity funds were "fully invested".

His favourites picks were in software, automobile, petrochemicals and cement. "We would be overweight in these."

Bluechips such as Hero Honda Motors Ltd, India's biggest motorcycle maker, and Bajaj Auto Ltd, the nation's largest producer of scooters, have exceeded expectations while reporting their second-quarter performance.

The markets have also been cheered by a flow of overseas orders to technology companies such as Wipro Ltd, India's most valuable software firm by market capitalisation.

Madgavkar said cement shares, that have come off sharply following the widespread drought and reduced spending by some states, were likely to see renewed investor interest. "We expect better results from the cement sector," he said.

Prudential ICICI is 55 per cent owned by Prudential Plc, Britain's second-biggest insurer, and 45 per cent by ICICI Bank Ltd, India's largest private-sector bank.

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