Malini Bhupta: The return of foreign investors

Year 2013 is expected to be another bumper year for equities

Global investors are willing to commit their dollars to India once again. This would sound like music to the government's ears, considering it has staked its very existence by unleashing a barrage of market friendly “reforms” from early September. Well, to put it simply, this do-or-die strategy has worked because global investors seem to be willing to bet on India and its “idiosyncratic” performance yet again. Till two months ago, this was not the case for reasons that have been written about ad nauseam (plummeting growth, twin deficits, slowing corporate earnings and risk of a sovereign downgrade). The regulatory uncertainty unleashed (read and retrospective taxation rules) in the document (2012-13) further flashed the red signal for foreigners.

It’s taken the new finance minister less than a couple of months to undo a large part of the sentimental damage caused by his predecessor. While the so-called reforms will take time to play out, what Chidambaram has done is give a sense of clarity to market participants on where the economy is headed. And to achieve this, his trusted lieutenants are doing all they can to reassure foreign investors. The government is spending quality time at road-shows giving details to investors sitting in London, Dubai and New York.

So what are the investors saying about India? Numerous brokerages (domestic and foreign) have organised investor meets outside India to gauge the mood of the foreign institutions on India. The good news is that there is a clear shift in perception as far as Indian assets are concerned, which means that Indian equities are set for another year of positive performance. Citi, which met 60 institutional investors in London recently, says that the initial reaction was skeptical, but seeing the government’s firm resolve to push through key measures like FDI in retail and other sectors, there’s a sense of “acceptance.” Rohini Malkani, India economist of and author of a note on this subject, writes: “Investors admitted that ‘yes, one was caught flat-footed’ and now see (a) growth bottoming out and (b) aversion of a rating downgrade (for now) and early elections.”

Though the sentiment has turned, and the government has somewhat regained its credibility, what will really turn this vicious cycle into a virtuous one is when corporate profitability starts showing improvement and the earnings upgrade start. While this may be a few quarters away, the worst is now seemingly over. For starters, the risk of tailwinds emanating from macro-economic concerns has abated. The worst is over both for economic growth as well as corporate earnings.

There is another reason why foreign investors seem to be excited about India. The last one year has shown that corporate India’s earnings are resilient. Despite the regulatory turmoil, policy paralysis and high interest rates, India Inc’s earnings have not been very volatile. says, foreign investors want to put money in India because of earnings stability and India’s relative growth: They call it the TINA (there is no alternative) factor. The brokerage says: “It seems that relative stability in earnings outlook has been an important contributor to market performance. This marks such a contrast with 2011, when India was among the worst on relative earnings and price performance. Unlike in 2011, the earnings trend in 2012 mirrors India’s long-term record in earnings. Over time, not only has earnings growth been comparable with that of the rest of the world, but the earnings stream has also exhibited markedly lower volatility.”

If there’s one thing that the market loves, it’s predictability. And that is what corporate India’s earnings are reflecting. Analysts are again veering towards the argument that for this very reason India deserves premium valuation. Willy-nilly an upgrade is likely sooner than later, if investment activity picks up.

For those doubting where the equity will head in 2013, read on for a detailed lowdown given by finance secretary DK Mittal in London on a whole lot of issues on policy, government and the road ahead. With the government going all out to reassure “global investors,” it’s worth giving equities a chance.

MittalSpeak: Edited excerpts from Antique Stock Broking's report on what DK Mittal conveyed in London

On National Investment Board
National Investment Board (NIB) will be formed by government which will act as a single window clearance for the infrastructure projects above INR10bn. NIB will be headed by prime minister which will ensure fast track clearances for the major infrastructure projects.

On pooling of subsidies/scheme
Central government is working towards a mechanism whereby it will combine various subsidies/schemes which will reduce the cost of management as well as curtail the cost of subsidies.

On capital infusion in PSU banks
Mr. Mittal also highlighted that government is committed to infuse capital in banks as and when required. As per estimates, PSU banks will need capital infusion of approx. $20bn in next 5-7 years, which will be met through government budget. It has also set up a committee to assess the capital requirements of public sector banks to ensure that Tier-I capital is at 8% and government holding at 58%, and also prepare them for Basel III capital norms. However, Mr. Mittal stated that banks will also have to work towards improving their efficiencies and enhance profitability so that internal accruals can take care of some capital requirements.

On government to address supply side constrains to tame Inflation
Serious efforts are underway to address the supply side constrains in order to tame down inflation. The appreciating currency (steep depreciation of INR has lead to 150bps jump in inflation) coupled with base effect will also help and inflation is expected to come down to 6-6.5% by end of this fiscal.

On fiscal deficit will be brought to globally accepted levels
The Kelkar committee report on fiscal consolidation is submitted to cabinet. Mr. Mittal reaffirmed that government is committed to follow a fiscal consolidation map and will curtail expenditure and will bring the deficits to the globally accepted levels. Subsidies will be directly transferred by the end of this plan and the banking system is ready for the implementation. Government is cognizant of the fact that we have to maintain our rating if not improve it, hence measureswill be taken accordingly.

On banking licenses to see light of the day soon
Government and RBI are in discussion for the issuance of new banking licenses and the new banking licenses will soon see the light of the day.

On joint lending guidelines to be out soon
Globally banks share information which helps the banking system from getting over exposed to certain groups. The guidelines for the joint lending are under process and will be out very soon.

image
Business Standard
177 22
Business Standard

Malini Bhupta: The return of foreign investors

Year 2013 is expected to be another bumper year for equities

Malini Bhupta 



Global investors are willing to commit their dollars to India once again. This would sound like music to the government's ears, considering it has staked its very existence by unleashing a barrage of market friendly “reforms” from early September. Well, to put it simply, this do-or-die strategy has worked because global investors seem to be willing to bet on India and its “idiosyncratic” performance yet again. Till two months ago, this was not the case for reasons that have been written about ad nauseam (plummeting growth, twin deficits, slowing corporate earnings and risk of a sovereign downgrade). The regulatory uncertainty unleashed (read and retrospective taxation rules) in the document (2012-13) further flashed the red signal for foreigners.

It’s taken the new finance minister less than a couple of months to undo a large part of the sentimental damage caused by his predecessor. While the so-called reforms will take time to play out, what Chidambaram has done is give a sense of clarity to market participants on where the economy is headed. And to achieve this, his trusted lieutenants are doing all they can to reassure foreign investors. The government is spending quality time at road-shows giving details to investors sitting in London, Dubai and New York.

So what are the investors saying about India? Numerous brokerages (domestic and foreign) have organised investor meets outside India to gauge the mood of the foreign institutions on India. The good news is that there is a clear shift in perception as far as Indian assets are concerned, which means that Indian equities are set for another year of positive performance. Citi, which met 60 institutional investors in London recently, says that the initial reaction was skeptical, but seeing the government’s firm resolve to push through key measures like FDI in retail and other sectors, there’s a sense of “acceptance.” Rohini Malkani, India economist of and author of a note on this subject, writes: “Investors admitted that ‘yes, one was caught flat-footed’ and now see (a) growth bottoming out and (b) aversion of a rating downgrade (for now) and early elections.”

Though the sentiment has turned, and the government has somewhat regained its credibility, what will really turn this vicious cycle into a virtuous one is when corporate profitability starts showing improvement and the earnings upgrade start. While this may be a few quarters away, the worst is now seemingly over. For starters, the risk of tailwinds emanating from macro-economic concerns has abated. The worst is over both for economic growth as well as corporate earnings.

There is another reason why foreign investors seem to be excited about India. The last one year has shown that corporate India’s earnings are resilient. Despite the regulatory turmoil, policy paralysis and high interest rates, India Inc’s earnings have not been very volatile. says, foreign investors want to put money in India because of earnings stability and India’s relative growth: They call it the TINA (there is no alternative) factor. The brokerage says: “It seems that relative stability in earnings outlook has been an important contributor to market performance. This marks such a contrast with 2011, when India was among the worst on relative earnings and price performance. Unlike in 2011, the earnings trend in 2012 mirrors India’s long-term record in earnings. Over time, not only has earnings growth been comparable with that of the rest of the world, but the earnings stream has also exhibited markedly lower volatility.”



If there’s one thing that the market loves, it’s predictability. And that is what corporate India’s earnings are reflecting. Analysts are again veering towards the argument that for this very reason India deserves premium valuation. Willy-nilly an upgrade is likely sooner than later, if investment activity picks up.

For those doubting where the equity will head in 2013, read on for a detailed lowdown given by finance secretary DK Mittal in London on a whole lot of issues on policy, government and the road ahead. With the government going all out to reassure “global investors,” it’s worth giving equities a chance.

MittalSpeak: Edited excerpts from Antique Stock Broking's report on what DK Mittal conveyed in London

On National Investment Board
National Investment Board (NIB) will be formed by government which will act as a single window clearance for the infrastructure projects above INR10bn. NIB will be headed by prime minister which will ensure fast track clearances for the major infrastructure projects.

On pooling of subsidies/scheme
Central government is working towards a mechanism whereby it will combine various subsidies/schemes which will reduce the cost of management as well as curtail the cost of subsidies.

On capital infusion in PSU banks
Mr. Mittal also highlighted that government is committed to infuse capital in banks as and when required. As per estimates, PSU banks will need capital infusion of approx. $20bn in next 5-7 years, which will be met through government budget. It has also set up a committee to assess the capital requirements of public sector banks to ensure that Tier-I capital is at 8% and government holding at 58%, and also prepare them for Basel III capital norms. However, Mr. Mittal stated that banks will also have to work towards improving their efficiencies and enhance profitability so that internal accruals can take care of some capital requirements.

On government to address supply side constrains to tame Inflation
Serious efforts are underway to address the supply side constrains in order to tame down inflation. The appreciating currency (steep depreciation of INR has lead to 150bps jump in inflation) coupled with base effect will also help and inflation is expected to come down to 6-6.5% by end of this fiscal.

On fiscal deficit will be brought to globally accepted levels
The Kelkar committee report on fiscal consolidation is submitted to cabinet. Mr. Mittal reaffirmed that government is committed to follow a fiscal consolidation map and will curtail expenditure and will bring the deficits to the globally accepted levels. Subsidies will be directly transferred by the end of this plan and the banking system is ready for the implementation. Government is cognizant of the fact that we have to maintain our rating if not improve it, hence measureswill be taken accordingly.

On banking licenses to see light of the day soon
Government and RBI are in discussion for the issuance of new banking licenses and the new banking licenses will soon see the light of the day.

On joint lending guidelines to be out soon
Globally banks share information which helps the banking system from getting over exposed to certain groups. The guidelines for the joint lending are under process and will be out very soon.

RECOMMENDED FOR YOU

Malini Bhupta: The return of foreign investors

Year 2013 is expected to be another bumper year for equities

Global investors are willing to commit their dollars to India once again. This would sound like music to the government's ears, considering it has staked its very existence by unleashing a barrage of market friendly “reforms” from early September. Well, to put it simply, this do-or-die strategy has worked because global investors seem to be willing to bet on India and its “idiosyncratic” performance yet again.

Global investors are willing to commit their dollars to India once again. This would sound like music to the government's ears, considering it has staked its very existence by unleashing a barrage of market friendly “reforms” from early September. Well, to put it simply, this do-or-die strategy has worked because global investors seem to be willing to bet on India and its “idiosyncratic” performance yet again. Till two months ago, this was not the case for reasons that have been written about ad nauseam (plummeting growth, twin deficits, slowing corporate earnings and risk of a sovereign downgrade). The regulatory uncertainty unleashed (read and retrospective taxation rules) in the document (2012-13) further flashed the red signal for foreigners.

It’s taken the new finance minister less than a couple of months to undo a large part of the sentimental damage caused by his predecessor. While the so-called reforms will take time to play out, what Chidambaram has done is give a sense of clarity to market participants on where the economy is headed. And to achieve this, his trusted lieutenants are doing all they can to reassure foreign investors. The government is spending quality time at road-shows giving details to investors sitting in London, Dubai and New York.

So what are the investors saying about India? Numerous brokerages (domestic and foreign) have organised investor meets outside India to gauge the mood of the foreign institutions on India. The good news is that there is a clear shift in perception as far as Indian assets are concerned, which means that Indian equities are set for another year of positive performance. Citi, which met 60 institutional investors in London recently, says that the initial reaction was skeptical, but seeing the government’s firm resolve to push through key measures like FDI in retail and other sectors, there’s a sense of “acceptance.” Rohini Malkani, India economist of and author of a note on this subject, writes: “Investors admitted that ‘yes, one was caught flat-footed’ and now see (a) growth bottoming out and (b) aversion of a rating downgrade (for now) and early elections.”

Though the sentiment has turned, and the government has somewhat regained its credibility, what will really turn this vicious cycle into a virtuous one is when corporate profitability starts showing improvement and the earnings upgrade start. While this may be a few quarters away, the worst is now seemingly over. For starters, the risk of tailwinds emanating from macro-economic concerns has abated. The worst is over both for economic growth as well as corporate earnings.

There is another reason why foreign investors seem to be excited about India. The last one year has shown that corporate India’s earnings are resilient. Despite the regulatory turmoil, policy paralysis and high interest rates, India Inc’s earnings have not been very volatile. says, foreign investors want to put money in India because of earnings stability and India’s relative growth: They call it the TINA (there is no alternative) factor. The brokerage says: “It seems that relative stability in earnings outlook has been an important contributor to market performance. This marks such a contrast with 2011, when India was among the worst on relative earnings and price performance. Unlike in 2011, the earnings trend in 2012 mirrors India’s long-term record in earnings. Over time, not only has earnings growth been comparable with that of the rest of the world, but the earnings stream has also exhibited markedly lower volatility.”

If there’s one thing that the market loves, it’s predictability. And that is what corporate India’s earnings are reflecting. Analysts are again veering towards the argument that for this very reason India deserves premium valuation. Willy-nilly an upgrade is likely sooner than later, if investment activity picks up.

For those doubting where the equity will head in 2013, read on for a detailed lowdown given by finance secretary DK Mittal in London on a whole lot of issues on policy, government and the road ahead. With the government going all out to reassure “global investors,” it’s worth giving equities a chance.

MittalSpeak: Edited excerpts from Antique Stock Broking's report on what DK Mittal conveyed in London

On National Investment Board
National Investment Board (NIB) will be formed by government which will act as a single window clearance for the infrastructure projects above INR10bn. NIB will be headed by prime minister which will ensure fast track clearances for the major infrastructure projects.

On pooling of subsidies/scheme
Central government is working towards a mechanism whereby it will combine various subsidies/schemes which will reduce the cost of management as well as curtail the cost of subsidies.

On capital infusion in PSU banks
Mr. Mittal also highlighted that government is committed to infuse capital in banks as and when required. As per estimates, PSU banks will need capital infusion of approx. $20bn in next 5-7 years, which will be met through government budget. It has also set up a committee to assess the capital requirements of public sector banks to ensure that Tier-I capital is at 8% and government holding at 58%, and also prepare them for Basel III capital norms. However, Mr. Mittal stated that banks will also have to work towards improving their efficiencies and enhance profitability so that internal accruals can take care of some capital requirements.

On government to address supply side constrains to tame Inflation
Serious efforts are underway to address the supply side constrains in order to tame down inflation. The appreciating currency (steep depreciation of INR has lead to 150bps jump in inflation) coupled with base effect will also help and inflation is expected to come down to 6-6.5% by end of this fiscal.

On fiscal deficit will be brought to globally accepted levels
The Kelkar committee report on fiscal consolidation is submitted to cabinet. Mr. Mittal reaffirmed that government is committed to follow a fiscal consolidation map and will curtail expenditure and will bring the deficits to the globally accepted levels. Subsidies will be directly transferred by the end of this plan and the banking system is ready for the implementation. Government is cognizant of the fact that we have to maintain our rating if not improve it, hence measureswill be taken accordingly.

On banking licenses to see light of the day soon
Government and RBI are in discussion for the issuance of new banking licenses and the new banking licenses will soon see the light of the day.

On joint lending guidelines to be out soon
Globally banks share information which helps the banking system from getting over exposed to certain groups. The guidelines for the joint lending are under process and will be out very soon.

image
Business Standard
177 22

LIVE MARKET

BSE

  ( %)

NSE

  ( %)

More News

  • Two beaten-down sectors to pick winners from
  • Indian stocks end two-day advance as Infosys drops Indian stocks end two-day advance as Infosys drops

STOCK WATCH

Company Price() Chg(%)
GVK Power Infra. 6.66 8.12
Trident 49.80 7.21
Orient Cement 184.90 6.88
Syngene Intl. 460.75 5.99
Inox Leisure 275.30 5.76
> More on BSE Gainers
Company Price() Chg(%)
GVK Power Infra. 6.65 8.13
Puravankar.Proj. 50.00 7.64
Trident 49.90 7.43
Orient Cement 184.75 6.79
Inox Leisure 276.75 6.40
> More on NSE Gainers
Company Price() Chg(%)
Welspun India 54.40 -8.26
Astrazeneca Phar 1078.10 -5.47
Torrent Pharma. 1612.00 -5.25
Manappuram Fin. 81.45 -4.74
Sequent Scien. 139.25 -4.00
> More on BSE Gainers
Company Price() Chg(%)
Welspun India 54.05 -9.16
Torrent Pharma. 1612.20 -5.22
Manappuram Fin. 81.30 -5.13
Astrazeneca Phar 1080.25 -5.11
KPIT Tech. 129.60 -4.32
> More on NSE Gainers
Widgets Magazine
Widgets Magazine
Widgets Magazine

Derivatives

Index
Instrument Type
Expiry Date
Option Type
Strike Price

Upgrade To Premium Services

Welcome User

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

  • Access Exclusive content - articles, features & opinion pieces
  • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
  • Access to 17 plus years of content archives
  • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
  • End of day news alerts on 5 companies (via email)
  • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
 

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard