January 21, 2011 / 11:23 AM / 8 years ago

No end in sight to India's growth boom - Goldman

FRANKFURT (Reuters) - Indian stocks remain a clear buy for the next few years because inflation fears and concerns about overvaluation are unjustified, Goldman Sachs Asset Management’s chief investment officer for India said.

Brokers trade on their computer terminals at a stock brokerage firm in Mumbai May 4, 2009. REUTERS/Punit Paranjpe/Files

Thomson Reuters StarMine showed Indian equities trade at 13.5 times estimated 12-month forward earnings, the highest multiple among high-growth emerging markets dubbed BRIC (Brazil, Russia, India, China).

This has fuelled concerns that parts of the Indian equity landscape — such as the IT sector — may be overvalued, a view not shared by Prashant Khemka.

“Indian equities have always traded at higher relative multiples. But I believe a premium does not equal an overvaluation. In fact, I see more value in the country given the prospects going forward,” he told Reuters in an interview.

A Reuters poll in December showed India’s benchmark 30-share Bombay Stock Exchange index benchmark index is seen rising nearly 20 percent by the end of this year, boosted by a fast-growing economy and strong corporate earnings.

“I believe we are at the early stages of what could be a long and strong earnings cycle, hence the market multiple — which is in line with historical averages — is at a reasonably attractive level.”

Khemka reckons Indian companies’ earnings could post annual growth of up to 20 percent over the next three to four years, adding he favoured stocks catering to the country’s buoyant middle class.


The $90 million GS India Equity Portfolio is almost 10 percentage points overweight industrials compared with the MSCI India IMI Index.

“This is partly due to the fact the sector has a more domestically oriented exposure,” Khemka said.

“The same goes for the consumer discretionary sector — including auto companies, auto components and retail — which all benefit from the secular strength of domestic demand.”

Top holdings include carmaker Tata Motors, engineering companies Larsen & Toubro and Thermax Ltd as well as Infosys Technologies, India’s second-largest outsourcer, the fund’s biggest position.

Khemka said the Indian IT sector also benefited from low capital expenditure and high returns, making it an attractive investment opportunity.

“In other emerging markets, mainly Asia, which have a more hardware-oriented focus in their tech sector, the situation looks different.”

Asked whether high inflation could curb capital inflow into Asia’s third-biggest economy, Khemka said he expected it to subside to 5-6 percent in the second half of 2011.

A Reuters poll this week showed inflation in India is seen at 8.8 percent, up from 8.3 percent expected in the October poll, while the prospect of further fiscal tightening is unnerving foreign investors.

Khemka also shrugged off fears of a spill-over of the European sovereign debt crisis into India’s economy, which is set to grow 8.7 percent in the year to March, before slowing to 8.5 percent in the following year.

“This is certainly on the radar but is not a major concern. In fact, sluggish growth in the U.S. or Europe is good for India for two reasons: first, exports as a percentage of the economy is much smaller for India compared with most countries; second, it helps to keep in check commodity prices, mainly crude oil.”

Editing by David Hulmes

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