Oct. 3 (Bloomberg) -- N. Sethuram Iyer, chief investment officer at Daiwa Asset Management India Pvt., comments on the outlook for Indian equities in an interview to Bloomberg UTV.
The BSE India Sensitive Index, or Sensex, sank 2.4 percent to 16,064.30 at 12:34 p.m. in Mumbai. The gauge slid 13 percent in the quarter ended September, the most since the three-month period ended Dec. 31, 2008.
“The mood is still very uncertain. There’s total uncertainty about the immediate future in the developed world. The news from U.S. is not even, it’s mixed.”
Consumer spending in the U.S. slowed in August as incomes unexpectedly dropped for the first time in almost two years, forcing households to dip into savings. Purchases climbed 0.2 percent after a 0.7 percent increase in July, Commerce Department figures showed on Sept. 30.
On Indian stocks and economy:
“We are shedding the excess flab we gathered.”
The Sensex has plummeted 21 percent this year on concern Europe’s debt crisis and slowing economic growth in the U.S. may worsen the effects of the central bank’s record increases in borrowing costs on corporate profits. The gauge rallied 17 percent in 2010 after surging 81 percent in 2009.
“Slowing down of GDP growth is definitely a concern.”
India’s GDP expansion 7.7 percent last quarter from a year ago, the slowest pace since 2009, a government report showed on Aug. 30.
“What would concern a foreign investor is that we are not done with the interest-rate hikes. There may be another 25 basis points hike in October.”
The Reserve Bank of India has increased borrowing costs by a total of 350 basis points starting mid-March 2010 to tame the fastest inflation among the so-called BRICS nations. It meets on Oct. 25 for its next policy review.
“Fiscal deficit is another concern facing us. Depreciation of the rupee could be dangerous given that we are net importers of commodities.”
The Indian rupee weakened 8.7 percent last quarter, the biggest drop since 1992.
On valuations and sectors:
“All these are purely short-term phenomena. We are very bullish on the markets in the medium-to-long term. India is high-growth story.
‘‘This is a market for value-picking. Valuations for a number of sectors and companies are what one would call dirt- cheap. There is a lot of value in software stocks because the rupee drop would have given a big boost to their margins.’’
India’s ‘‘consumption-led growth’’ will boost prospects for companies in the consumer and pharma sectors, Iyer said.
‘‘Infrastructure, construction and capital goods are sectors one has to be cautious about.’’
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