* Consumer goods, pharmas seen too expensive-poll
* Investors to increase equity allocations-poll
* Midcaps favoured amid risk-taking mood-poll
By Himank Sharma and Aditya Kalra
MUMBAI/NEW DELHI, Oct 3 Fund managers have
responded quickly to New Delhi's economic reform drive, selling
expensive consumer stocks in favour of the construction-related
shares they expect to benefit most from new government
initiatives to bolster India's sagging infrastructure, a Reuters
Fund managers are also increasing their allocations to
financial companies on expectations the central bank will lower
interest rates after India recently announced fiscal and
economic reforms, the survey found.
The portfolio changes occur amid a stock market rally that
is encouraging fund managers to increase their exposure to
equities in coming months.
"It is of course the valuation, but more importantly it is
the renewed belief there will be some more reform measures aimed
at fixing India's ailing infrastructure," said Waqar Naqvi,
Chief Executive at Taurus Mutual Fund.
The Reuters poll on asset allocation showed the overwhelming
majority favored construction or related stocks for the next
three months. India has announced plans to award 9,500 kms of
road projects in the fiscal year to March 2013, and commission
three new airports, among other initiatives.
Recent gains in shares such as cement manufacturer Ambuja
Cements to record highs show valuations also favour
construction-related sectors, especially against defensive
sectors such as consumer goods and pharmaceuticals that had
outperformed earlier this year.
Stocks such as cigarette maker ITC had been among
the top gainers this year, as they were seen as companies with
good earnings prospects and able to withstand the volatility
then gripping markets.
However, the wave of fiscal and economic reforms from the
government, which have included raising subsidised diesel
prices, along with global stimulus measures, are now favouring
cyclicals and other sectors, according to fund managers.
In the survey, seven said they would cut their holdings of
consumer non-durables and three were neutral on the sector.
The Fast Moving Consumer Goods index at the
National Stock Exchange rose 39 percent this year as of Monday's
close, and FMCG stocks in India are trading at a multiple of
1.27 to their average intrinsic value according to StarMine
That compares to 0.75 for engineering and
construction-related shares and 0.53 for banking and
finance-related shares, the other big sector benefiting from
increased allocation from fund managers.
A multiple of 1 on this valuation ratio implies a sector or
a stock is fairly valued.
The financial sector could benefit as the Reserve Bank of
India is expected to cut interest rates as early as October, and
ease monetary policy further in the months ahead.
"Some major banks have always been part of our portfolio,
but now is the time to go after some of the smaller names," said
Nandkumar Surti, chief executive of JPMorgan Asset Management
India Pvt Ltd said.
Seven of the 11 respondents said they would increase their
equity allocation over the next three months and none of those
polled were willing to pare their bets on the market, even after
$1.21 billion has been withdrawn from such funds in the year to
August, according to industry data.
That increased willingness to take on more risk in stock
markets is being reflected in the push to mid-caps: nine of the
11 polled were looking to increase allocation in this segment,
often at the expense of larger stocks.
"Typically mid-caps are more vulnerable during a bad
environment, but they also go up faster than large-caps when
markets improve," said Jayesh Shroff, an equity fund manager at
SBI Mutual Funds.
(Editing by Rafael Nam and Eric Meijer)