PineBridge looks past Adani Group saga to load up on stocks in India

US asset manager PineBridge Investments is using India’s recent market selloff to start buying stocks for its multi-asset portfolios, wagering that explosive corporate governance allegations against the Adani conglomerate won’t derail a growth and manufacturing boom.
 

While short-seller Hindenburg Research’s Jan. 24 report about the business empire of tycoon Gautam Adani has been one reason why investors have pulled billions of dollars out of Indian markets, Michael Kelly, who oversees Pinebridge’s $17.8 billion global multi-asset portfolios, is among those going the other way.

The stock meltdown offered an entry point into what’s historically an expensive market, according to Kelly, who also sits on PineBridge’s management committee. His funds were not in Indian stocks before the rout in Adani securities, but they have since bought, Kelly said, adding that “we are not necessarily done.”

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Corporate governance risks such as those highlighted by Hindenburg exist not just in emerging markets, Kelly said, noting massive US corporate bankruptcies in 2001-2002 that were triggered by fraudulent accounting practices at Worldcom and Enron. He also does not discount the risk of more shocks to come in Indian markets as corporate governance scrutiny increases.

“If you shine a spotlight, you will find things,” Kelly said. “You can never say there is only one cockroach. In the US there was Worldcom and then another cockroach called Enron,” he added. “Having said that, if you shine a light on India, you will also see a lot of good companies.”

With MSCI’s India index about 10% below the record high hit in December, some of these names have become more affordable, Kelly said, even though the gauge still trades around 20 times forward earnings —  double the ratio of the main emerging-markets benchmark.

“There are companies trading at 90 times earnings, with a large weight in global indexes, but you can also find things that are not expensive and are not significant in indexes,” he said, declining to say which stocks he was buying.

Kelly’s bullishness is based on conviction that India, after several false starts, is finally set to benefit from global multinationals’ desire to diversify manufacturing away from China. Companies including Apple Inc. and Foxconn Technology Co.. are expanding Indian operations, reacting to Sino-US tensions, and draconian Covid policies that paralyzed swathes of industry last year. 

Also read: LIC's investment in Adani Group stocks now stands close to cost: Report

While India’s labyrinthine bureaucracy and poor infrastructure have caused plenty of frustrated foreign companies to ditch their plans for India, Kelly said banking sector improvements and measures to streamline taxation are game-changers for foreign direct investments. “With the China issues, we are again hearing people talking about giving India another try,” he added.

Kelly also likes Chinese shares: India and China together account for “a mid-teens” percentage share in his multi-asset portfolios, positions he funded by selling US and European equities. But he sees India’s outlook as clearer for now, with Chinese President Xi Jinping’s future policy direction a particular concern, following crackdowns on several sectors including private tutoring and gaming. 

“In India, we think we can buy an accelerating three-four-year growth picture at a reasonable price,” Kelly said. “In China, you can buy an accelerating picture for the next year, after that we have to see whether Xi will go back to Maoism.”