Jardine Report Calls For Policy Changes
Jardine has assigned a neutral weightage for India in the research report with a 7.2 per cent weight of the Asian market capitalisation excluding Japan. Jardine has been neutral on India since June, when the BSE index was at around 4000 levels. The index at the time of the report was at 3515 points. The country performed poorly in the month of August as there was virtually no foreign buying. "Investors digested fairly widespread earning downgrades", the report says. On the yearly $10 billion FDI target, the report says though it is technically possible, "it would take a few years coming".
According to Jardine, about $3.5 billion is expected during fiscal 1997. The centre is in the process of expediting clearance of most FDI proposals as it is widely accepted that only huge FDI inflows can allow the current 7 per cent economic growth rate to be maintained.
On the interest rates, the report mentions that despite high interest rates and acute infrastructure bottlenecks, the financial year 1996 industrial production growth (Index of Industrial Production growth) came in at an astounding 12.4 per cent.
However, says the report, growth has started to slow down, especially since March 1996. On the net foreign inflows, the report observes that the period August 1-19 witnessed a tremendous slowdown with a net figure of $28 million for the period compared with $300 million for the whole month of July.
The reasons could be that most foreign investors are away on holiday in August. Also two large issues floated in July mopped up $400 million from offshore markets with a possibility of further large issues being floated soon. Another reason could be a wait-and-watch attitude towards the new government's policies, says the report.
This trend could be worrisome as this slowdown has led to a big fall in the market after a sustained rise for seven months.
And as FIIs continue to remain the main supporters of the market, the continuation of the current trend may lead to the Indian markets remaining lacklustre.
Jardine attributes consumer goods as a good defensive sector. Due to the low penetration base of consumer products in India, companies in this sector will grow at more than 20 per cent for the next few years.