02-20-2004, 01:18 AM
Might not be the right thread...nevertheless:
Today's Wall St Journal article (subscription site, posting in full):
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->THE WALL STREET JOURNAL, FEBRUARY 19, 2004
<b>
[url=http://online.wsj.com/article/0,,SB107714681116133212,00.html
]Investors Find the 'Other' Billion-Person Nation[/url]
It's India, and Portfolio Managers Say It Might Outshine China; Foreign Investing Is Opening Up <!--emo&:cool--><img src='style_emoticons/<#EMO_DIR#>/specool.gif' border='0' style='vertical-align:middle' alt='specool.gif' /><!--endemo-->
By CRAIG KARMIN </b>
Staff Reporter of THE WALL STREET JOURNAL
At a time when China commands more attention from investors than any other emerging market, many U.S. fund managers are starting to take a closer look at the other billion-person nation: India.
India has received only a fraction of the money that corporations have invested in China, but portfolio managers say India is in a number of ways the more attractive stock-market investment.
The South Asian giant has spawned a greater number of companies that can compete on a global scale and whose management style more closely resembles their U.S. competitors. That list includes Indian software firms such as Infosys Technologies and Wipro and pharmaceutical companies such as Dr. Reddy's Laboratories, all of which trade in New York. Investors also credit India with having better corporate disclosure, stronger property rights, and a more investor-friendly legal system than China.
India is about a dozen years behind China in liberalizing its economy, lowering tariffs, and opening up industry to foreign investors. But it is beginning to close that gap. Just recently, in fact, the government raised the ceiling on foreign investment in private banks and abolished foreign limits on private oil exploration and marketing companies.
New Delhi is forecasting Indian economic growth of about 8% for the fiscal year ending next month -- on par with China's official growth forecast for 2004 -- and it has emerged as the world leader for outsourcing and call centers.
Some economists say India may be entering a period of rapid growth reminiscent of China's powerful economic expansion of the 1990s, enabling India to evolve over the next few years from a fringe to a more mainstream emerging market. Investors have been encouraged to see the government running on a market-reform platform ahead of the April parliamentary elections and anticipate an acceleration in reform measures after the elections.
"India looks like it is at the beginning of a multiyear upswing," says Mark Madden, who manages the Pioneer Emerging Markets Fund and counts India as one of his three top country picks this year, along with Brazil and Turkey.
Foreigners invested a record $7 billion in Indian stocks last year, which helped the rupee appreciate 5% against the U.S. dollar in 2003 as the Bombay Sensex Index jumped 82% in dollar terms. (So far this year, the Sensex is up 3.2%.) Foreign fund mangers raised their stakes in India's 10 biggest companies by 7.3 percentage points to 35.2% of shares outstanding, according to Morgan Stanley.
Some large global funds with limited emerging-market investments are taking a fresh look. "A lot of our guys [have been] getting excited about what was going on in India," says Shigeki Makino, senior global portfolio manager for Putnam Investments.
His fund last year bought shares of Reliant, a conglomerate with telecom and petrochemical businesses, marking the fund's first Indian purchase in years. He cited the stock as a way to play the country's economic growth and a cheap valuation relative to global peers, though he adds that most Indian stocks have too small a market capitalization for large global funds that like to take big positions.
And even if the optimistic forecasts come true, India still poses plenty of risks. While there has been a recent thaw in tension between India and Pakistan, any future conflict could weigh on the market.
In the U.S., a political backlash against the outsourcing of jobs to India has been gaining momentum. Recently, the Senate passed an amendment restricting companies from using offshore workers for government-contract work. State legislators in New Jersey and Indiana have passed similar measures, sparking an angry response from New Delhi and raising concerns about a potential trade war. Both the Democrats and Republicans are already making this a campaign issue.
<b>Populist Opposition</b>
In India, the ruling coalition could face increasing populist opposition to market overhauls if the economic gains aren't seen as equitably distributed and India's widespread poverty doesn't ease. Also, poor infrastructure -- from roads and highways to ports and power supply -- must be improved to cut transportation costs and boost gross domestic product.
Even if India's economy does achieve a higher level of sustained economic growth, that alone doesn't make it a wise investment. "Investors commonly fall into the trap of equating fast economic growth with strong stock-market performances," says Andrew Milligan, head of global strategy for Standard Life Investments in Edinburgh, Scotland. "That need not be the case."
Look no farther than China: Despite persistent annual economic growth of 7% to 10% over the past decade, the stock market has seen no gains over that period and lots of volatility. In fact, the Morgan Stanley Capital International China Index tumbled 75% from its inception in 1993 through the end of 2003.
Yet some investors maintain that there are compelling reasons to expect something better from India, even if the stock market stumbles in the near term following last year's big gains.
Most of the Chinese companies that went public in the 1990s were bloated state-owned enterprises. They were selected not because they were the most profitable, or attractive, candidates but because they had political connections or Beijing wanted to use the stock market to help bail them out. They remain majority state-owned.
In India, by contrast, about 60% of publicly traded companies have no state ownership, says Arindam Bhattacharjee, a portfolio manager at Emerging Markets Management in Arlington, Va.
That percentage is poised to rise as privatization and restructuring gather steam. For instance, Maruti Udyog, India's largest auto maker, started in 1977 as a joint venture between the government and Japan's Suzuki Motor. But the government has been selling down its stake as part of a plan for the auto maker to be wholly owned by Suzuki and shareholders. Maruti said it sold a record 49,140 cars in January, a 30% year-over-year increase, and the shares have more than tripled in price since the initial public offering of stock last summer.
<b>Not Cheap?</b>
After last year's rally, some say that Indian stocks no longer look cheap. Mr. Madden at Pioneer points out, however, that some of the most expensive have the best growth rates. Infosys, for example, trades at 23.4 times its estimated earnings for the fiscal year ending in March 2005, but earnings per share are projected to grow 26% for that period.
Still, he favors banks that are positioned to benefit from India's economic growth. In recent years, they have been freed from government instructions to lend to the agricultural sector at limited rates and are turning their focus to the more profitable consumer-loan market. He likes Punjab National Bank, which trades at less than seven times estimated earnings for the fiscal year ending in March 2005 and has projected earnings growth of 16% for that period.
Mr. Bhattacharjee notes that unlike China, where few companies have much presence overseas, several Indian companies rely on exports for the bulk of their revenue. Bharat Forge, an auto-components maker, counts on exports for 60% of its sales, with about half of that foreign revenue coming from the U.S. The generic drug maker Ranbaxy gets about 50% of revenue abroad, mostly from U.S. sales.
<!--QuoteEnd--><!--QuoteEEnd-->
Today's Wall St Journal article (subscription site, posting in full):
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->THE WALL STREET JOURNAL, FEBRUARY 19, 2004
<b>
[url=http://online.wsj.com/article/0,,SB107714681116133212,00.html
]Investors Find the 'Other' Billion-Person Nation[/url]
It's India, and Portfolio Managers Say It Might Outshine China; Foreign Investing Is Opening Up <!--emo&:cool--><img src='style_emoticons/<#EMO_DIR#>/specool.gif' border='0' style='vertical-align:middle' alt='specool.gif' /><!--endemo-->
By CRAIG KARMIN </b>
Staff Reporter of THE WALL STREET JOURNAL
At a time when China commands more attention from investors than any other emerging market, many U.S. fund managers are starting to take a closer look at the other billion-person nation: India.
India has received only a fraction of the money that corporations have invested in China, but portfolio managers say India is in a number of ways the more attractive stock-market investment.
The South Asian giant has spawned a greater number of companies that can compete on a global scale and whose management style more closely resembles their U.S. competitors. That list includes Indian software firms such as Infosys Technologies and Wipro and pharmaceutical companies such as Dr. Reddy's Laboratories, all of which trade in New York. Investors also credit India with having better corporate disclosure, stronger property rights, and a more investor-friendly legal system than China.
India is about a dozen years behind China in liberalizing its economy, lowering tariffs, and opening up industry to foreign investors. But it is beginning to close that gap. Just recently, in fact, the government raised the ceiling on foreign investment in private banks and abolished foreign limits on private oil exploration and marketing companies.
New Delhi is forecasting Indian economic growth of about 8% for the fiscal year ending next month -- on par with China's official growth forecast for 2004 -- and it has emerged as the world leader for outsourcing and call centers.
Some economists say India may be entering a period of rapid growth reminiscent of China's powerful economic expansion of the 1990s, enabling India to evolve over the next few years from a fringe to a more mainstream emerging market. Investors have been encouraged to see the government running on a market-reform platform ahead of the April parliamentary elections and anticipate an acceleration in reform measures after the elections.
"India looks like it is at the beginning of a multiyear upswing," says Mark Madden, who manages the Pioneer Emerging Markets Fund and counts India as one of his three top country picks this year, along with Brazil and Turkey.
Foreigners invested a record $7 billion in Indian stocks last year, which helped the rupee appreciate 5% against the U.S. dollar in 2003 as the Bombay Sensex Index jumped 82% in dollar terms. (So far this year, the Sensex is up 3.2%.) Foreign fund mangers raised their stakes in India's 10 biggest companies by 7.3 percentage points to 35.2% of shares outstanding, according to Morgan Stanley.
Some large global funds with limited emerging-market investments are taking a fresh look. "A lot of our guys [have been] getting excited about what was going on in India," says Shigeki Makino, senior global portfolio manager for Putnam Investments.
His fund last year bought shares of Reliant, a conglomerate with telecom and petrochemical businesses, marking the fund's first Indian purchase in years. He cited the stock as a way to play the country's economic growth and a cheap valuation relative to global peers, though he adds that most Indian stocks have too small a market capitalization for large global funds that like to take big positions.
And even if the optimistic forecasts come true, India still poses plenty of risks. While there has been a recent thaw in tension between India and Pakistan, any future conflict could weigh on the market.
In the U.S., a political backlash against the outsourcing of jobs to India has been gaining momentum. Recently, the Senate passed an amendment restricting companies from using offshore workers for government-contract work. State legislators in New Jersey and Indiana have passed similar measures, sparking an angry response from New Delhi and raising concerns about a potential trade war. Both the Democrats and Republicans are already making this a campaign issue.
<b>Populist Opposition</b>
In India, the ruling coalition could face increasing populist opposition to market overhauls if the economic gains aren't seen as equitably distributed and India's widespread poverty doesn't ease. Also, poor infrastructure -- from roads and highways to ports and power supply -- must be improved to cut transportation costs and boost gross domestic product.
Even if India's economy does achieve a higher level of sustained economic growth, that alone doesn't make it a wise investment. "Investors commonly fall into the trap of equating fast economic growth with strong stock-market performances," says Andrew Milligan, head of global strategy for Standard Life Investments in Edinburgh, Scotland. "That need not be the case."
Look no farther than China: Despite persistent annual economic growth of 7% to 10% over the past decade, the stock market has seen no gains over that period and lots of volatility. In fact, the Morgan Stanley Capital International China Index tumbled 75% from its inception in 1993 through the end of 2003.
Yet some investors maintain that there are compelling reasons to expect something better from India, even if the stock market stumbles in the near term following last year's big gains.
Most of the Chinese companies that went public in the 1990s were bloated state-owned enterprises. They were selected not because they were the most profitable, or attractive, candidates but because they had political connections or Beijing wanted to use the stock market to help bail them out. They remain majority state-owned.
In India, by contrast, about 60% of publicly traded companies have no state ownership, says Arindam Bhattacharjee, a portfolio manager at Emerging Markets Management in Arlington, Va.
That percentage is poised to rise as privatization and restructuring gather steam. For instance, Maruti Udyog, India's largest auto maker, started in 1977 as a joint venture between the government and Japan's Suzuki Motor. But the government has been selling down its stake as part of a plan for the auto maker to be wholly owned by Suzuki and shareholders. Maruti said it sold a record 49,140 cars in January, a 30% year-over-year increase, and the shares have more than tripled in price since the initial public offering of stock last summer.
<b>Not Cheap?</b>
After last year's rally, some say that Indian stocks no longer look cheap. Mr. Madden at Pioneer points out, however, that some of the most expensive have the best growth rates. Infosys, for example, trades at 23.4 times its estimated earnings for the fiscal year ending in March 2005, but earnings per share are projected to grow 26% for that period.
Still, he favors banks that are positioned to benefit from India's economic growth. In recent years, they have been freed from government instructions to lend to the agricultural sector at limited rates and are turning their focus to the more profitable consumer-loan market. He likes Punjab National Bank, which trades at less than seven times estimated earnings for the fiscal year ending in March 2005 and has projected earnings growth of 16% for that period.
Mr. Bhattacharjee notes that unlike China, where few companies have much presence overseas, several Indian companies rely on exports for the bulk of their revenue. Bharat Forge, an auto-components maker, counts on exports for 60% of its sales, with about half of that foreign revenue coming from the U.S. The generic drug maker Ranbaxy gets about 50% of revenue abroad, mostly from U.S. sales.
<!--QuoteEnd--><!--QuoteEEnd-->