India still attractive, say overseas investors

Updated: Nov 30 2008, 07:31am hrs
Indias first terrorist attack against foreigners has done nothing to dent Mark Mobiuss confidence in the stock market of the worlds second-fastest growing major economy Mobius, executive chairman of San Mateo, California-based Templeton Asset Management Ltd, says any stock declines may be short-lived, as Indias economy is still vibrant and the Bombay Stock Exchange Sensitive Index is valued near the cheapest level on record relative to profit. AMP Capital Investors also expects any declines spurred by the attacks on two luxury hotels in Indias financial capital to be short-lived.

The Sensex rose 0.7% to 9,092.72 at the close in Mumbai, the highest in almost two weeks. The index rebounded from a 1.5% drop, trimming Novembers decline to 7.8%, the smallest in three months. The bourses were shut on Thursday after militants stormed into the Taj Mahal Palace and Tower hotel and the Oberoi Trident complex, killing at least 121 people. Its a fast-growing economy and we cant allow this kind of incident to sway our decisions regarding where we want to invest, Mobius, 72, said in a Bloomberg Television interview from Hong Kong. India will rise from this and prosper. S&P CNX Nifty Index futures for December delivery rose 2.9% to 2,763.0 as of 6:13 pm in Singapore trading, the highest in almost two weeks, after falling 2.7% on Thursday. The rupee fell 1.5% to 50.18, the biggest drop in more than two weeks.

Infosys, Bharti

Stocks also rose after Indias economy grew at a faster-than-expected pace. Asias third-largest economy expanded 7.6% in the three months to September 30 from a year earlier, after a 7.9% gain in the previous quarter, the statistics office said in a statement in New Delhi on Friday. The median forecast of 16 economists in a Bloomberg News survey was for 7.2% growth. Infosys Technologies Ltd, Indias second-largest computer-services provider, rose 4.8% to Rs 1,243.85. Bharti Airtel Ltd, the countrys biggest mobile-phone operator, gained 2.5% to 671.05. Both stocks were at their highest in more than two weeks.

The underlying fundamentals of the economy are impacted more by whats happening globally than by these events, said Markus Rosgen, chief Asia strategist at Citigroup Inc. in Hong Kong. The assaults were the latest blow to investors after the worst global financial crisis since the Great Depression sparked this years 54% drop in the Sensex stock index, the biggest annual decline on record.

Leaving in droves

International investors sold a record $13.5 billion in Indian equities this year as of November 24, according to data from the Securities and Exchange Board of India, as global credit losses and writedowns approached $1 trillion. Investors bought a record $17.4 billion in 2007.

In this environment of extreme risk aversion, the bombing probably will give investors a fright, said Alistair Thompson, who helps manage Asian and global emerging market assets at First State Investments in Singapore. India was facing challenges anyway with massive amounts of foreign money leaving in droves.

This years slump has left the Sensex index valued at 9 times the earnings of its 30 companies, less than half the four-year average of 19.3, according to data compiled by Bloomberg. The gauge traded at 8.4 times profit last week, the cheapest level since at least 2002.

Hammered to death

Stock prices have been hammered to death, said Seth Freeman, who overseas $130 million as chief executive officer of EM Capital Management LLC. I wish we had more capital to deploy at this point.

Indias finance minister Palaniappan Chidambaram predicted last week economic growth will bounce back to 9% in 2009, from at least 7% this year, driven by record crop plantings, public sector pay increases and tax breaks. The International Monetary Fund in Washington said this month that India may expand 6.3% in 2009, the fastest after China among the worlds 20 biggest economies.

The Sensexs drop this year has still been smaller than Chinas CSI 300 Index, which fell 66%, and Russias ruble-denominated Micex Index, which lost 73%. Brazil is the only one of the so-called BRIC nations to outperform India, with the Bovespa Index losing 43%.

Stock and bond markets in India were last shut in July 2005, after monsoon rains disrupted Mumbai and other areas in the western state of Maharashtra. The last time exchanges were closed because of a terrorist attack was on March 12, 1993, when bomb blasts in the city killed more than 250 people.

Knee-jerk reaction

The Sensex posted a two-day, 3.5% rally following that attack. The gauge rose 3% the week after a train bombing on March 13, 2003.

It fell 2.9% on August 25, 2003, when car bombs left more than 40 dead, before finishing that week up 2.9%. Bombings on commuter trains in Mumbai on July 11, 2006, also didnt prevent the Sensex from climbing 3% the next day.

After these things, you often see a knee-jerk reaction, said Nader Naeimi, a Sydney-based strategist at AMP Capital, which oversees $85 billion. I dont think these attacks will have any lasting impact at all. The market has adjusted to a world with the potential of terrorist attacks.