India: Time to change those Asian asset allocations?<http://ftalphaville.ft.com/blog/2009/05/19/56004/india-time-to-change-those-asian-asset-allocations/>Posted by *Gwen Robinson* on May 19 08:38.
Get rid of a few Communists and see what happens… India did just that in its weekend election<http://www.ft.com/cms/s/0/b0515406-440c-11de-a9be-00144feabdc0.html>, handing the ruling Congress Party a definitive victory, putting a rocket under the country’s stock markets and allaying fears of an unwieldy coalition. The euphoria of what is being called “Golden Monday” continued on Tuesday as Mumbai’s benchmark Sensex index climbed for a second day, reports <http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahKw6aOc2Rgk>Bloomberg, extending Monday’s massive one-day gain on speculation that Congress victory will accelerate reforms to boost economic growth. Investors had sent share prices soaring 17 per cent on Monday - their biggest one-day gain in almost two decades - before the authorities halted trading. As Carpe Diem notes,<http://mjperry.blogspot.com/2009/05/communists-are-out-indias-market-soars.html>the near collapse of India’s once powerful communist parties — which lost more than half their parliamentary seats — frees the Congress Party from relying on communist support and paves the way for long-awaited economic reforms, many of which the Left had blocked over the last five years:The Congress party now has more room to ease restrictions on foreign investment in insurance, retailing and banking. The government may also sell some of its stakes in state-run oil, banking, and fertilizer companies. The nation’s pension regulator could get proper legal standing, which would encourage greater investment. And some steps might be taken to loosen hidebound labor laws, like allowing contract labor… But some analysts warned the new government could disappoint investors - not least because of unrealistic expectations and more opposition than immediately apparent to market liberalisation. As the FT notes, the “bulk of the Congress party’s electoral support did not come from people seeking reform”. All the while, India is suffering from the global downturn. Economic growth rates have fallen from 9 per cent to nearer 5 per cent this year, some estimates show. “This should be a Big Bang for the market . . . The big question is: is it a game-changer? Can India get back to the high growth and the high valuation of recent years?” Rohini Malkani, economist at Citigroup, told the FT. But others, such as CLSA strategist Christopher Wood, expect a surge of overseas portfolio capital into the Indian stock market, after a hiatus when many foreign investors held back due to the uncertainty of the electoral process. This is why foreigners only became net buyers of Indian stocks in early May in terms of the buying and selling action year to date, explains Wood in a Monday note to clients. Thus, foreigners have bought a net $1.8bn worth of Indian stocks so far this year, whereas last year, he reminds us, foreigners sold a net $13bn of Indian stocks after buying a massive $51bn worth between the beginning of 2003 and the end of 2007. So, concludes Wood, the Indian election result “calls for some asset allocation changes” in an Asia Pacific ex-Japan portfolio - not least to go further overweight on India, “in anticipation of outperformance”. At very least, investors with benchmark-related mandates who are underweight India will feel under pressure to buy India in coming days, he says, advising to go for big-cap infrastructure plays, particularly energy-related stocks. That’s because the key macro-economic hope stemming from the election process is that Prime Minister Manmohan Singh will use the mandate to accelerate reform, in Wood’s view:If so, this should help promote infrastructure and therefore investment spending. The election also raises the potential for a more responsible approach to India’s precarious fiscal situation. This in turn should help bring downward pressure on interest rates. Still with real mortgage rates at 9% there is already lots of room for the banks to cut borrowing rates more. For now, we’ll leave it to the FT’s own Gideon Rachman to douse what he calls “some unwarranted starry-eyed conclusions” about India with a little scepticism<http://www.ft.com/cms/s/0/9ec96146-43d6-11de-a9be-00144feabdc0.html> . First, he says, remember that the country’s democracy is “not always a beautiful sight”:Manmohan Singh, the 76-year-old prime minister who has just won re-election, is a charmingly intellectual and courtly figure. But while Mr Singh is an impeccable frontman, the country’s politics has a much sleazier and more disreputable side. Second, just because India is a democracy, it does not follow that it will automatically side with fellow-democracies around the world. The sleazy side of Indian democracy has led to a third common notion — popular in the authoritarian parts of Asia: the idea that democracy imposes a sort of tax on India.But it is still true that, for all the virtues of its political system, Indian governance has failed hundreds of millions of people. Rates of poverty and illiteracy are much higher in democratic India than in authoritarian China. Finally:Euphoria about modern India has led to a fourth mistaken idea: the notion that democracy has given the country a deep and unshakable stability. It is certainly true that the political future of China looks more uncertain and alarming than that of India, Asia’s other great subcontinental nation. But India still faces serious threats to its internal stability. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. 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