Bloomberg News

Birla Sun Life Raises Cash Level as India Enters Bear Market

August 30, 2011

(Adds Sensex’s closing level in 10th paragraph.)

Aug. 30 (Bloomberg) -- Birla Sun Life Asset Management Co., India’s fifth-biggest money manager, increased its cash level as the nation’s stocks entered a bear market this month amid a rout in global equities.

Birla Sun Life, which raised its cash holdings to about 8 percent from 5 percent three months ago, may use the funds to “catch certain stocks when there is a sharp correction in the market,” Mahesh Patil, who oversees about $3 billion in stocks as co-chief investment officer, said yesterday in an interview in Mumbai. He declined to say when he would deploy the money.

The Bombay Stock Exchange Sensitive Index, or Sensex, has slid 21 percent from its Nov. 5 peak, more than the 20 percent level that marks a bear market, on concern the U.S. is slowing and Europe’s debt crisis may worsen. Companies on the measure trade at 13.9 times future profits, near the lowest level since April 2009, and down from 21.5 times in March 2010.

“Markets seem to be discounting most of the concerns and valuations are below long-term averages,” said Patil, whose firm has $14.7 billion in total assets.

The Reserve Bank of India has raised rates 11 times since the start of last year to cool the fastest inflation among the BRICS nations of Brazil, Russia, India, China and South Africa. That contrasts with nations from Japan to Switzerland which are trying to support expansion.

“Looking at a slowdown globally and other central banks going in for a loose monetary policy, I think the Reserve Bank will also look at its stance,” said Patil. “Concerns about inflation and interest rates will ease in the next two-to-three months. After that, it all boils down to the rate at which the economy will grow and how things will pick up.”

Record Tightening

India’s economy grew 7.7 percent in the quarter ended June 30, the government said today. That beat the 7.6 percent median of 26 estimates in a Bloomberg survey and maintains pressure on the central bank to extend its tightening measures at its Sept. 16 meeting. Its policy makers have forecast the economic growth of about 8 percent in the year to March from 8.5 percent in the previous 12 months.

Earnings for 46 percent of Sensex companies missed analyst estimates in the June quarter, compared with 33 percent that trailed forecasts in the previous three months, data compiled by Bloomberg show. Morgan Stanley this month pared its year-end target for the stock gauge by 15 percent to 18,850, and CLSA Asia-Pacific Markets cut its estimate to 18,200 from 19,500, citing slower economic and profit growth.

‘Earnings Visibility’

“Despite the downgrades, we are still looking at 13-to-14 percent earnings growth and that gives us more support to invest at these levels,” said Patil. “We are focusing on companies with strong balance sheets, and where there’s clear visibility of earnings and sustainability of earnings growth.”

The Sensex jumped 1.6 percent to 16,676.75 at the 3:30 p.m. close, the steepest two-day gain since July 2009.

Birla Sun Life Frontline Equity Fund, managed by Patil, has beaten 90 percent of its peers in the past five years, according to Bloomberg data. It has returned 13.4 percent annually during the period, compared with the BSE-200 Index’s 9 percent advance. Lenders including ICICI Bank Ltd., the nation’s biggest outside state control, made up 18 percent of the 29 billion-rupee fund as of June 30, the data show.

Bharti Airtel Ltd., India’s biggest mobile phone operator, accounted for 3.7 percent of the Frontline Equity Fund on June 30, the data show. The stock has jumped 24 percent in the past year, compared with 11 percent drop in the BSE-200 Index.

Patil favors large-cap software makers because they have “strong balance sheets” and can better withstand a slowdown in the global economy. The industry made up 9.3 percent of the fund, and the nation’s biggest technology companies, Tata Consultancy Services and Infosys Ltd., were among top holdings.

“Visibility for fiscal year ending March 2013 is still not clear looking at the current macro environment in Europe and the U.S.,” he said. “We would avoid small and mid-sized software names in the current environment.”

--Editors: Ravil Shirodkar, Darren Boey

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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