Fund manager Ashburton sees spark in India

Mumbai

WHILE funds in May were selling Indian equities at the fastest pace in 22 months and buying Chinese stocks instead, Ashburton Investments Ltd was doing the opposite.

Falling valuations have "presented an excellent opportunity to build positions" in India at the expense of China, said Jonathan Schiessl, the head of equities at the UK-based Ashburton, which oversees US$12 billion. His India equity fund has returned 79 per cent since its launch about three years ago, according to Mr Schiessl.

Shares on India's S&P BSE Sensex index are valued at a 16 per cent discount to the Shanghai Composite Index, the biggest gap since November 2009. The Chinese measure has advanced 49 per cent this year through Monday, compared with a 1.3 per cent gain in the Indian benchmark gauge. The MSCI BRIC Index has climbed 12 per cent.

Backing Ashburton's case is India's brighter economic and earnings prospects than its Communist-ruled neighbour. India's economy grew 7.5 per cent in the three months through March, beating China's 7 per cent expansion, while the International Monetary Fund predicts India will outpace China in the current fiscal year. Profits in companies on the Sensex will climb 45 per cent in the next 12 months, compared with a 33 per cent gain for the Shanghai Composite, analyst estimates compiled by Bloomberg show.

Foreign investors have been trimming positions in Indian equities as enthusiasm waned over Prime Minister Narendra Modi's ability to push through major economic proposals and China's stock rally became too big to ignore. "Investors are reducing overweight positions and buying into other interesting stories," said Adrian Mowat, the Hong Kong-based chief Asian and emerging-market equity strategist at JPMorgan Chase & Co. "India was a big consensus overweight for a long time."

Foreign funds pulled a net US$429 million from Indian shares in May, the biggest outflows since August 2013, and sold about US$1.4 billion more of bonds than they bought. US-listed ETFs that track Chinese equities in the mainland, Hong Kong and US lured US$1.1 billion in new money over the past month, the second-most after Japan.

Just a year ago, newly-elected Mr Modi was seducing foreign investors and brokerages alike as the Shanghai Composite languished near multi-year lows. BNP Paribas said that India's "Reagan-Thatcher" moment would bring subsidy cuts, more investment and a simpler tax regime. Global funds agreed: They pumped a record US$42 billion into Indian stocks and bonds in 2014.

Since then, major economic proposals including a goods and services tax and a bill to make it easier for companies to buy land have been stalled by his opponents, who control the upper house of parliament. BLOOMBERG