* Fund managers see current stock valuations as fair
* 4 of 7 fund managers see more downside in the mkt
* 6 of 7 respondents plan to increase exposure to autos
By Aditya Kalra
NEW DELHI, May 31 Domestic fund managers plan to retain or increase their exposure to stocks over the next three months, while auto companies and financials will be their top bets, a Reuters poll showed. [ID:nSGE64U07N]
All seven respondents to the Reuters Asset Allocation Poll conducted between May 24 and May 31 said Indian shares are currently fairly valued, while four managers said they would increase equity exposure to benefit from the market fall.
India's benchmark stock index .BSESN is down more than 3 percent in May, with concerns about the euro zone debt crisis and an uptick in conflict risk on the Korean peninsula weighing on investor sentiment.
"There are uncertainties in the market which are similar to 2008 but not of the same magnitude. These will increase mispricing in assets and we would like to take advantage of that," said Sanjay Sinha, chief executive at L&T Mutual Fund.
"16,500 level is a level which we can defend."
The weakness in global sentiment has reduced investor appetite for risky assets and foreign funds have come under redemption pressure.
Foreign funds have pulled out $2.3 billion from India equities in May, which pushed the benchmark index to its lowest close in three-and-a-half months last Tuesday, when it also slipped below the 16,000 mark for the first time since February.
Four of the seven fund managers polled see the stock market falling more in the coming three months, with two of them predicting the benchmark can slide in excess of 5 percent.
Fund managers plan to buy more stocks from the mid-cap space and will look at reducing some exposure to the riskier small-cap companies in the next three months, the poll showed.
Three of the seven respondents said they would buy more mid-cap stocks while two said they will decrease exposure to smaller firms.
AUTOS, FINANCIALS EYED
Domestic managers plan to increase their holdings in automobile companies, the poll showed, as some top automakers posted forecast-beating results for the March quarter.
Tata Motors (TAMO.BO), India's top vehicle maker, beat market estimates with a surge in March quarter earnings, while Hero Honda Motors HROH.BO, India's largest bike maker, reported a forecast beating 49 percent rise in quarterly net profit.
Six of the seven respondents to the poll said they would increase exposure to the sector.
Financials, which have been fund managers' top sectoral pick since August 2008, will continue to be on the radar, with five managers planning to further increase their bets on the sector.
"We think incremental monetary tightening pressures would reduce as we go forward because of the scare of global growth coming down ... we still see value in these stocks," said Tridib Pathak, director equity at IDFC Asset Management.
Indian bank loans rose 17.2 percent on year as of May 7, and analysts expect loan demand to pick up further in the first half of 2010/11 as industries will need more funds to expand capacity.
India's economy grew at its fastest pace in six months in the quarter through March 2010, and experts said the consumption theme would keep consumer space in focus. All seven respondents said they would either increase or retain their exposure.
Some balanced fund managers, those who invest in both stocks and bonds, are also looking at reducing their allocation to cash.
(Editing by Tony Tharakand and Sunil Nair)
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