'Invest overseas in companies with India exposure better than direct investment'

Written by Markets Bureau | Mumbai Apr 30 | Updated: May 2 2008, 05:18am hrs
Jim ONeill, head of Global Economic Research at Goldman Sachs, better known as the person who coined the BRIC as a term, reckons that the India growth story is strong and the country will command an extremely strong position if its productivity potential is unleashed. However, he advises investors to look at companies listed in European and US markets with strong India operations, rather than investing in India directly.

At the moment, Indian the India trades at 16 times its one year forward earnings, and there are other markets that trade at lower multiples. So overseas investors could get exposure to Indias growth potential at lower valuations in these markets, is ONeills reasoning. He also reckons that there are several other institutions that have a strong earnings outlook on Indias companies and therefore the current multiple of 16 times one year forward earnings could also look attractive.

Speaking to select media gathering, ONeill believes that this time around the Federal Reserves rate cut could well be the last one. The Fed will pause and take a look at other development, he added. ONeill rubbished the notion that interest rate differentials could be the cause of money flowing into India. Rates have gone up and down over the years, and this has not influenced money flows at all, he added. A lot of institutions use this belief, but over the years, it is the countrys earning potential that decides the extent of fund flows, he asserted.

ONeill believes that there are substantial funds in the middle-east region that will be flowing into emerging markets, and even India. And they have no linkages with the US interest rates, he adds.

ONeill believes that the dollar weakness will actually help the US as exports have started rising faster than non-oil imports and the US could well have a current account deficit of 3% to the GDP and this will make it stronger and also the global economy.