Indian Stocks Will Rebound on Rural Stimulus, Kotak’s Alroy Lobo Says
Bloomberg News
8 July 2009
July 8 (Bloomberg) -- India’s Sensitive Index may rebound to 16,500 in the next year as foreign investors buy the nation’s stocks because of better valuations and rural spending by the government, Kotak Mahindra Asset Management Co. said.
Growth is “strong” and domestic demand has “yet to be unleashed,” Alroy Lobo, who helps oversee $1.7 billion as chief strategist and global head of equities at Kotak Mahindra Asset Management, said by phone today. The index will rise to between 16,000 to 16,500 over 12 months, led by infrastructure-related stocks and companies that offer a “rural play,” he said.
The Sensex plunged 3.1 percent to 13,730.29 at 10:39 a.m. on the Bombay Stock Exchange. The gauge is on course for its worst week since February after Finance Minister Pranab Mukherjee on July 6 unveiled the widest budget deficit in 16 years and failed to lay out firm plans to sell state-run assets and ease foreign investment rules.
Investor expectations for the budget were high after Prime Minister Manmohan Singh won a resounding re-election in May, reducing his dependence on allies such as the communist parties who opposed asset sales and looser foreign investment policies during his first term.
The Sensex remains 43 percent higher this year, making it the seventh-best performing market among 88 tracked by Bloomberg globally.
India has “sound banking system, fantastic demographic profile, good rural India story” and valuations are not “outlandish,” so the money will come, said Lobo. “The India story is intact.”
‘Risk Worth Taking’
India has risked a higher fiscal deficit to lift economic growth and is focusing on farms and rural areas in its bid to stimulate demand, Mukherjee told business leaders in New Delhi yesterday. He added that the deficit will be a “risk worth taking” to stimulate economic growth “because the global recession is set to continue this year.”
Telecom, consumer goods, agro-chemicals and infrastructure- related stocks, two-wheeler makers and fertilizer companies will benefit from the budget as the government increases spending in rural areas, Lobo said.
“If rural India does well, then the overall GDP moves up,” Lobo said. “It has a contagion effect on the entire economy.”
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