Third quarter results could be the next trigger for the Indian markets

Updated: Jan 21 2007, 09:12am hrs
Punita Kumar Sinha is the portfolio manager and chief investment officer for both The India Fund and The Asia Tigers Fund, and is a senior managing director of The Blackstone Group. She has closely monitored several markets and asset classes across the globe. In a chat with Yagnesh Kansara of The Financial Express, she expressed her views on the Indian stock markets. Some excerpts:

How do you compare Indian markets with other emerging markets in Asia

In some of the Asian markets like China and Korea, corporate disclosures are not good as compared to that in India. Also, the penetration of English as a language is also not as good. Here, we find so many English newspapers from leading publishing houses whereas in China all the leading newspapers are in local languages. So it is very difficult for an average foreign investor, who does not know the local language, to get local information of what is happening around. Also, the Indian regulatory framework is better than other Asian countries that fall under the emerging markets category. The quality of disclosures in India is good and strong. Indian insider trading laws have encouraged investments made by foreign investors in India

As compared to India, why is China attracting more portfolio investment these days

India has witnessed a bull-run since the last three to four years, say from mid 2003 onwards, whereas in the case of China, the bull-run has begun just last year. So valuations are much cheaper in China as compared to that of India. Also, most of the obstacles with respect to investment by the foreign investors have gone. Because of all these reasons, China is witnessing a lot of speculation, on the same lines witnessed in the Indian mid-cap space. In China, stocks are rising 10% every day on the basis of some or the other good news and markets are witnessing a lot of volatility. Both India and China are trading at the same P/E multiple.

What do you think could be the negative trigger for Indian markets in the near future

I think results for the quarter ended in December could be the next trigger for the Indian markets. The quarterly results will form the basis for how Indian stock markets will perform in the whole of 2007. Everyone has been watching it very closely since currently the Indian valuations is very high. The quarterly numbers will set the base of what happens for the rest of the year. Though valuations are high, Indian companies have delivered on the earnings front. Another trigger could be the budget. It could be the trigger either for the markets to go up or down. It all, therefore, depends on the news quality -- good news or bad -- that will determine the direction.

How do you see the Indian taxation policy, particularly from a foreign investor's perspective

It is still unclear. I mean it is not unclear but there is always lot of noise and rumours floating around.

You mean to say the government should be very clear on the taxation issues with respect to foreign investors

Well, the government tries to be clear but there is always some amount of ambiguity and I think there are enough people who stir up the issue with certain interest.

Why do foreign investors refrain from investing in small- and mid-cap space in the Indian markets

Foreign institutional investors (FIIs) who are bullish on the Indian stock markets do not have much option available to invest in the mid- and small-cap space as they lack research data in this segment. India does not offer much room for investments in the small and mid cap segment for the FIIs.

Again, lack of reliable research available on such stocks has the FIIs park their money in the top 200 Indian companies. In these companies, good quality research is available. Domestic research is focused mostly to the large-cap stocks and that is where FIIs have shown interest in, and this segment is now over-heated. Hence there is an urgent need for research in the small- and mid-cap segment.