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Indian stocks most attractive: Wall Street Journal

January 05, 2004 20:21 IST

Indian stocks have maintained their allure and are expected to be more profitable than other stock markets in the region, according to a media report.

Foreign funds invested more than $7 billion in Indian stocks in 2003, the highest amount since the country allowed foreign portfolio investments 10 years ago, the Wall Street Journal said on Monday, adding that the investments paid off handsomely.

The Bombay Stock Exchange's Sensitive Index is up 78.5 per cent since the start of 2003, after Monday's all-time high close of 6039.

However, big returns may not come as easily this year, with stock prices starting from a higher base, said the paper.

"We will likely get a return of about 15 per cent or so, but it will still be better than other asset classes like debt," according to Rajat Jain, chief investment officer at Principal Mutual Fund, which manages $620.l million.

In a Dow Jones Newswires poll, said the paper, fund managers in the region picked India as one of only three countries with a slight 'overweight' for an Asian-equities portfolio.

Thailand and Taiwan were the other two.

Lim Kok Boon, Singapore fund manager at Henderson Global Investors, which manages about $3 billion in Asian assets, says that factors that boosted the Indian market last year will still be there in 2004.

They include strong domestic demand in an economy expected to expand about 7 per cent annually during the next few years, more business from multinational companies outsourcing tasks to India to benefit from its lower costs, lower risks as India and Pakistan move to improve their relations and relatively attractive valuations.

Indian stocks are trading at a price-to-earnings ratio of 16, between a historic high of 27 and a low of 11.

"There is a potential for the fund flows to double from last year's $7 billion as the valuations remain attractive despite the sharp rise," said V Anantha Nageswaran, director of global economics and asset allocation at Credit Suisse First Boston.

Fund managers say one factor that will restrict investments by foreign funds is the small amount of floating shares in some of the most attractive companies.

The number of floating shares of state-run oil companies like Oil and Natural Gas Corp and Indian Oil Corp, for instance, is relatively small, with the government holding nearly 85 per cent of the shares in each company.

Fund managers picked pharmaceuticals and cement stocks as the best choices in India for this year.

Indian pharmaceutical companies have benefited from a rise in outsourcing orders with global giants using India's low cost facilities to make drugs. This has sharply boosted the earnings of Indian drug companies.

Divis Laboratories Ltd., for instance, saw its net profit rise 50 per cent for the year ended March 2003 and it is expected to maintain its growth.

This factor, combined with the relatively low valuations of Indian pharmaceutical companies, said the Journal, could make them an attractive buy.

Cement shares, said the paper, could also be winners in 2004, with profits rising as companies are able to increase prices amid demand from large infrastructure and housing projects around the country.

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