Good value

BLOOMBERG SPECIAL

The sharp decline in value of Indian scrips makes them attractive buys given their long-term prospects.

Nandita Parker, who manages an India- focused fund at Old Greenwich, Connecticut-based Karma Capital Management LLC, comments on India’s stock market decline, central bank measures, valuations and elections. She spoke in a telephone interview from New Delhi.

India’s benchmark Bombay Stock Exchange Sensitive Index, or Sensex, fell to its lowest in more than two years today. It was at 9,975.35, the lowest since June 20, 2006.

On the decline in the stock index
“The index has gone down because of FIIs (foreign institutional investors) selling. You can’t predict when that will stop. It is largely led by fear of redemptions.’’

On central bank measures
“The Indian central bank has taken a host of steps this week, which has been positively received by the banking system, but it might take another reduction in interest rates. It might be a bunch of confidence-building measures that need to be taken.

I still don’t see a lot of movement on the credit side. The banks are still a bit weary. And equity markets don’t have the patience to wait for the process of credit flow to take place.’’

On Indian banks
“In India, Indian banks especially, there is no counter- party risk. You can’t apply the same risk measures as you do overseas. That’s why we have a much higher level of comfort with the Indian banking system.

Indians banks will probably gain share from foreign banks in this cycle because there is so much lack of confidence in the foreign banks. The banking sector is showing signs of strength here.’’

On company earnings and valuations
“The earnings numbers are pretty good.

The equity markets have no patience.

You really need to understand whether six months from today you will see the valuations that you are seeing today when we are in a state of complete global stress. When that changes, will you see the same prices? Probably not.’’

On her investment strategy
“We are re-evaluating all our holdings. We are looking to see what kind of stress this places on our companies in the short term, in the next two quarters, and medium term, in a one-year period.

There might be cases that the lack of credit causes companies to completely shut down. And in a lot of cases, expansion plans are put on hold. So, we are re-calibrating our earnings estimate. We are not saying that because the situation is tight today, it will continue for five years.

A lot of larger well-capitalised companies in India are trading at amazing valuations. We are going back to our investors and we are looking to invest more.’’

On the domestic economy
“We are looking at the domestic-consumption story. There is a five-year wealth effect in India. The domestic savings rate is a solid cushion. This crisis has positioned India better than other markets in Asia. Last year’s big negative story was wage inflation. We are not going to see those numbers. We won’t see a shortage of people like engineers.’’

On elections and their impact
“One of the overhangs with India this year has been elections, and the uncertainty. The announcement of elections will actually cause a rally because the lack of policy initiatives has been so negative. In the last week, that changed. In general, the market is looking for a new government.’’

India’s next general elections need to be held by May, when the government of Prime Minister Manmohan Singh finishes its five-year term.