Foreign funds look past India's politics - South Korea

Business Asia, May 17, 1999 by Rosemary Arackaparambil

Foreign funds have poured into India to buy selected shares despite growing political uncertainty, fund managers and analysts claim.

Bargains began to emerge last month as investors bailed out of the market, unnerved by the collapse of the ruling coalition and failed attempts by opposition parties to cobble together an alternative government.

The inability of opposition figure Ms Sonia Gandhi to form a viable government has temporarily condemned India to rudderless leadership.

Political confusion has not deterred foreign investors, who appear willing to brave the political risk in order to pick up good stocks on the cheap.

Foreign funds made their largest net investment in India in nearly 20 months in April, buying nearly US$211 million of stock, according to the Securities and Exchange Board of India's tally of foreign institutional investors' (FII) deals.

Some commentators say FII inflows in the past few weeks are not a vote of confidence in India, saying the outlook by analysts is "neutral".

India is also receiving a knock-on effect from funds washing into Asia.

"Primarily, India is benefiting from liquidity flows into Asia rather than there being an India story, as such, that is inviting any investment on its own," said Mr Fergus Fleming, managing director of HSBC Securities.

Mr Brian Brown, managing director of Indosuez WI Carr Securities, said: "You have got the regional and global cyclical story. India has a lot of companies to choose from and overall valuations are fairly compelling and as the rest of the region goes up it will become more so."

Foreign funds have typically been bullish on the software, fast-moving consumer goods and pharmaceutical sectors, but lately they have been picking up cyclicals such as petrochemicals, automobiles and cement.

"There is a fair amount of shift into cyclicals. People are hunting for value, selling expensive stocks and moving into value stocks," said Mr Zaheer Sitabkhan, a fund manager of the Lloyd George India Fund in Hong Kong.

"Economic numbers are on the rebound, liquidity is as good as anywhere in the region, and growth is patchy but good in sectors like software and consumer goods and more importantly the cyclicals."

RELATED ARTICLE: No poll before September

India is set for a long spell of rule by a caretaker government after the country's independent poll authority declared that a general election could not be held before September.

The Election Commission's announcement capped several feverish days of thrust and parry by the nation's leading political parties after parliament was disbanded on April 26.

The three election commissioners said a final date for the general election would be set after "full preparation".

However, their decision meant that Prime Minister Atal Behari Vajpayee, who resigned on April 17 after losing a parliamentary confidence vote, could stay on in office for nearly six months.