Indian equity valuations ‘remain attractive’
Indian equity valuations remain attractive in spite of a solid rally in 2012 so far, according to HSBC’s Sanjiv Duggal.
The manager of the group’s flagship £2.5bn Indian Equity portfolio said foreign investment into the Indian stockmarket had turned sharply higher, as funds look to cover underweight or short positions in the country.
Mr Duggal is also confident that Indian inflation should continue to fall from peak levels of 10 per cent seen last year.
“The latest numbers for December and January support this view, with year-on-year inflation falling from 7.5 per cent in December to 6.6 per cent in January,” he adds.
“Given the slowdown in gross domestic product, the focus of both the government and the Reserve Bank of India has turned to growth relative to inflation. We expect further monetary easing over the course of 2012 so continue to favour domestic cyclical areas over domestic defensive and global sectors.”
According to Mr Duggal, recent outperformance from the fund has largely come from stock picks within the financials sector, where the team prefers public sector banks over most private sector institutions.
Elsewhere, he said overweight exposure to industrials and materials has also been beneficial to returns, as have underweight stakes in the telecom, information technology and energy sectors.
Conversely, the largest detractor was stockpicking within consumer staples.
“We continue to maintain an overweight position within domestic cyclicals, while maintaining our underweight stance in domestic defensive stocks,” he added.
“In global sectors, we remain overweight in healthcare and materials, but underweight in information technology and energy. We continued to reduce the number of small positions in the portfolio, given the sharp rebound in the market, and decrease the aggressive active-bet positions.”
Within Indian markets overall, Mr Duggal said inflows from foreign institutional investors were over $5bn (£3.1bn) in February – the third-highest month on record.
“Indian debt markets have enjoyed significant FII investment year to date and debt purchases have totalled $5.4bn, while equities have received $7.2bn,” he added.
“However, although the yield curve is inverted, investors are expecting a rate cut very soon.”
While industrial production increased 1.8 per cent in December from a year earlier, that latter figure showed a marked slowdown on the 5.9 per cent rise in November.
In other economic data, the January trade deficit rose to $14.7bn, the third-biggest deficit in the past 12 months.