Bloomberg News

Mobius Says Indian Stocks ‘Interesting’ Amid Drop to 2-Year Low

November 23, 2011

Nov. 23 (Bloomberg) -- Templeton Asset Management Ltd. will add to its holdings of Indian equities, Mark Mobius said, as the nation’s benchmark stock index sank to a two-year low.

“Indian markets look more and more interesting as prices come down,” Mobius, who oversees $40 billion as executive chairman of Franklin Templeton Investments’ Emerging Markets Group, told Bloomberg UTV today. “As prices come down we would pick up more of what we have and may be pick up something we don’t have.” He declined to name specific stocks.

The BSE India Sensitive Index, or Sensex, tumbled to its lowest level since November 2009 on concern the global economic crisis and a falling rupee will hurt profits already threatened by high borrowing costs. Companies in the gauge trade at 13.6 times estimated profits, near the lowest in 2 1/2 years. The MSCI Emerging Markets Index is valued at 9.7 times.

“When you have a sudden downturn the recovery can come very fast,” Mobius said. “Make sure you are fully invested. The recovery can come fast and the upside can be remarkable.”

Not everyone agrees Indian equities are cheap. Stocks may turn attractive when valuations narrow to 11 times to 12 times earnings, Nick Cringle, global co-chief investment officer at Royal Bank of Scotland Group Plc’s wealth management division, said in an interview today in Mumbai.

Foreign funds have reduced holdings of local shares by $2 billion from a record $104.4 billion in July, contributing to the slide in stocks and the rupee, as investors sold emerging market assets on concern the U.S. and Europe will struggle to curb deficits. The rupee fell to a record 52.73 yesterday.

Convertible Bonds

A weak currency will raise the cost of imported energy and other commodities and force companies with foreign currency debts to repay loans at higher costs, Sanjeev Prasad, executive director and co-head of institutional equities at Kotak Institutional Equities, told Bloomberg UTV today.

“Many companies raised foreign currency borrowings in the hope that interest rates overseas are lower and the rupee will remain stable, but that hasn’t worked out because of the steep depreciation in the rupee,” he said. “Companies will have to pay back more in rupee terms” when the debts mature, he said.

As many as 25 of 28 companies in the BSE-500 Index with foreign currency bonds maturing by March 31, 2013, will face redemption, translating into a 330-billion rupee ($6.3 billion) cash outflow, Edelweiss Securities Ltd. said in a note today.

Kotak has pared its earnings growth forecast for Sensex companies for the year ending in March to 14.4 percent from 19 percent, said Prasad, who was ranked India’s top analyst by Asiamoney magazine for five consecutive years through 2009.

‘Significant Slowdown’

The Reserve Bank of India, which has lifted interest rates 13 times since March 2010 to cool inflation that has remained above 9 percent for 11 straight months, in October lowered its growth forecast to 7.6 percent from 8 percent. Forty percent of Sensex company earnings trailed estimates in the quarter ended September, compared with 47 percent in the June quarter and 33 percent in March, Bloomberg data show.

“We’re seeing a significant slowdown domestically, and at the same time, interest rates continue to be stubbornly high which has raised borrowing costs for most companies,” Prasad said. “If anything, the second-half fiscal numbers are going to worsen from what we have seen in the first half.”

--With assistance from Pooja Thakur and Ruth David in Mumbai. 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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