* 5 of 9 respondents plan to increase equity exposure
* Financials, basic/engineering among favoured sectors
* 5 of 9 managers see stock market rising over next 3 months
By Aditya Kalra
NEW DELHI, April 30 Domestic money managers plan to further increase their exposure to equities in the next three months, with financials and capital goods topping their list of sector picks, a Reuters poll showed. [ID:SGE63T02V]
All nine respondents to the Reuters Asset Allocation Poll conducted between April 20 and April 29 said Indian equities are fairly valued at current levels, while five said they would buy stocks and reduce their cash holdings
"The liquidity situation is pretty good and the FII flow continues to remain robust," said Jayesh Shroff, fund manager at SBI Mutual Fund.
"The second call I'm taking is that monsoon will be normal. With normal monsoon, economy can see a significant pick-up."
The benchmark index climbed above 18,000 points earlier this month, for first time since Feb 2008, largely on foreign fund buying, although recent global worries on Greece and fear of a contagion have eaten into some of the gains.
Foreign funds have invested a net of $6.3 billion in Indian stocks in 2010, after pumping in a record $17.5 billion in 2009.
Global factors have "more of a sentimental impact on India rather than fundamental," said Sanjay Sinha, chief executive at L&T Mutual Fund.
Five of the nine fund managers see the stock market rising further in the next three months, with two of them predicting gains in excess of 5 percent. However, two respondents see the Indian market falling more than 5 percent.
None of the respondents plan to increase their exposure to small-cap stocks, but five managers said they would increase mid-cap holdings while four favour raising their bets on large-caps in their portfolios.
FINANCIALS, CAPITAL GOODS FAVOURITE
Financial services, the top bet of fund managers since August 2008, will continue to be on the radar, with seven out of nine managers looking at increasing their investments as two of the top three banks have announced forecast-beating earnings.
"The results that have come out from especially private sector banks so far have shown that the concern on asset quality is not as much translating into actual NPAs as it was feared to be," Shroff said.
Bank credit in India grew an annual 17.05 percent in early April, according to the Reserve Bank's provisional data, and analysts expect loan demand to pick up further in the first half of 2010/11.
Indian banks trade at 12 times their one year-forward price to earnings ratio, according to data from Thomson Reuters StarMine which accords a higher weightage to analysts with a better track record of predicting earnings.
That compares with 14.7 times for local shares.
Engineering and construction stocks will also be favoured by managers, as the 11th five-year plan backlog would accelerate spending in these sectors, experts said.
Six fund managers said they would increase their bets in engineering and five said they will look at investing more in construction companies.
Money managers may also eye technology stocks in the next three months, the poll showed, with five of the nine respondents looking at increasing their exposure to the sector.
Leading IT firms like Tata Consultancy Services beat profit estimates, whereas Infosys met profit forecasts when they declared their quarterly earnings earlier this month.
Some bond funds may increase their portfolio maturity in the next three months, while balanced funds would look at reducing their cash exposure, the poll showed. (Editing by Tony Tharakan and Ramya Venugopal)
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