Bloomberg News

F&C’s Mahtani Says He’s Become ‘More Positive’ on Indian Stocks

July 22, 2011

July 22 (Bloomberg) -- Sam Mahtani, director of emerging- market equities at London-based F&C Asset Management Plc, which has $6 billion in assets, comments on the outlook for the nation’s equities. He spoke today in an interview with Bloomberg-UTV in Mumbai.

The Bombay Stock Exchange Sensitive Index rose 1.6 percent to 18,735.41 at 12:55 p.m. in Mumbai.

On markets outlook:

“We’re becoming much more positive on the outlook for India and emerging markets over the next 12 months. We have decided to increase allocations to India in the past three to four weeks, and to some of the other bigger emerging markets like Brazil and China. They have been oversold. Concerns on inflation have been pretty much well discounted. Now is a good time for investors to start dipping their toes into India.”

“The market has pretty much bottomed. On a daily basis, there could be weak days as we navigate markets with news flow out of Europe and the U.S., but we don’t see a significant downside to India and emerging markets.”

On Europe and U.S. concerns:

“The balance sheets of emerging markets are much better and stronger than the developed world. There’ll be a resolution of the U.S. debt issue much before the Aug 2 deadline. We’re getting close to an inflexion point for emerging and Indian markets and the resolution of the two key global uncertainties will be a positive for emerging markets and India.

‘‘There’s still a huge amount of risk aversion in the investment community. A a lot of funds are still defensively positioned in emerging markets. They are investing in stable consumer-type names and are not willing to take much risk. We feel we are sticking our neck out in making this call.”

On outlook for Indian software companies:

“We believe in Infosys Ltd. and Tata Consultancy Services Ltd. Technology is one of our key themes in India.

‘‘You got to believe the Infosys model. They are looking to reposition the company into much higher value-added areas. There’s some transition taking place in terms of organizational structure and senior management. The last quarter was not brilliant. If you look out over the next 12 months, we think there is definitely decent upside to Infosys. Valuations are attractive. The market still has lot of doubt on whether the company can achieve this transformation. It’s a very strong, well-managed company.

‘‘The TCS story is slightly different. They are much more in the bread-and-butter software services businesses, which are growing. It is taking market share as a lot of global players are moving away from these kind of maintenance services market to high value-added market. TCS is effectively a machine. It’s benefiting from the weakness of some of its key competitors.’’

On Reliance Industries Ltd.:

‘‘There are short-term uncertainties that could impact the stock price. On a longer term view it is a decent investment opportunity. Some of the issues driving the stock price down will not necessarily get result overnight, particularly the production issues at KG-D6.’’

Reliance shares have fallen 17 percent in the past year, compared with the 3.2 percent gain in the Sensex.

On outlook for India’s inflation:

‘‘High inflation and the possibility of another 25 to 50 basis point increase in rates is pretty much discounted. We are looking to position the portfolio back into some rate-sensitive areas. The two themes are banking and automobiles. In banks, we are focusing on high quality blue-chip names where we have very minimal risk of non-performing assets.’’

ICICI Bank Ltd., the nation’s second-biggest lender, HDFC Bank Ltd., the third-largest, and Housing Development Finance Corp., the top mortgage lender, are among his favorite banking stocks. He also favors Mahindra & Mahindra Ltd., the nation’s biggest maker of sport-utility vehicles and tractors, and Bajaj Auto Ltd., the second-largest motorcycle maker.

ITC Ltd., Asia’s second-largest cigarette maker by market value, Coal India Ltd., the world’s top producer of the fuel, Larsen & Toubro Ltd., India’s largest engineering company, Sun Pharmaceutical Industries Ltd., the nation’s most valuable drug maker and Bharti Airtel Ltd., the biggest cell-phone operator, are among F&C’s top holdings, Mahtani said.

He expects Indian equities to return an average 20 percent in the next 12 months.

--Editor: Ravil Shirodkar

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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