Sensex to Hit Record on Profits for DSP BlackRock

S. Naganath, who has beaten 99 percent of his mutual fund peers in India, says the fastest profit growth in three years and unprecedented spending on roads and ports will drive the country’s benchmark stock index to a record high in the first half of 2011.

“At every dip, we’re a buyer,” Naganath, chief executive officer at DSP BlackRock Investment Managers Pvt, which manages $7 billion in assets, said in an interview in Mumbai today. “If the market falls, then we’ll seek to deploy our cash.”

India’s benchmark stock gauge on May 25 fell more than 10 percent from its recent peak as investors withdrew funds as the European crisis eroded confidence. Still, the gauge today completed its best week in 12 after Tata Motors Ltd., the owner of Jaguar Land Rover, posted profit that exceeded analysts’ estimates.

Trading will be “choppy” in the next six months amid concern Europe’s debt crisis may worsen, said Naganath, 45. Foreign funds sold $2.3 billion of Indian stocks in May, on course for the worst month since October 2008, following the collapse of Lehman Brothers Holdings Inc.

Return to Highs

“As the earnings upgrades come through as currently estimated, this market has the potential to get to the highs that we last saw in early 2008,” Naganath said. The DSP BlackRock Micro Cap Fund has returned 92 percent, compared with a 51 percent gain in the BSE Small-Cap Index, in the past year.

The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, would have to gain about 25 percent to reach its record set on Jan. 8, 2008. The nation doubled its target for infrastructure spending to $1 trillion in the five years starting 2012 to narrow the gap with China. India’s economy is also accelerating as rising incomes boost demand for cars, mobile phones and air travel.

India’s biggest companies are expected to post an average 25 percent gain in profits in the year ending March 2011, and a further 20 percent in the following year, Naganath said.

Birla Sun Life Asset Management Co., India’s fifth-largest money manager with almost $17 billion in assets, plans to boost stock holdings to as much as 30 percent from 20 percent now, Chief Executive Officer A. Balasubramanian said on May 26.

‘Sweet Spot’

“India is in a sweet spot now,” Balasubramanian said.

“The economy remains insulated from Greece and corporate earnings will maintain a high growth rate. So the correction in stocks is an opportunity for long-term investors.”

India’s small and mid-cap companies will lead a rebound in stocks this year as investors seek out values to tap on the nation’s economic growth, Seth Freeman, chief executive officer at San Francisco-based EM Capital Management LLC said today in a Bloomberg Television interview. Freeman said he’s “overweight” on financial services companies because the banking industry is “a proxy for overall growth in the country.” He also likes technology companies as demand for their services is expected to increase, he said.

The Sensex index of the largest 30 companies is trading at 16.3 times estimated profit, the highest in Asia excluding Japan. It’s also the most expensive among the four BRIC markets, which also include China, Brazil and Russia.

Outpace China

CLSA Asia Pacific Markets’s Christopher Wood, the second- ranked Asia strategist in Institutional Investor magazine’s annual poll, said May 18 he expects India to outpace China’s growth in the next five years with the new developments. Indian equities also have the most attractive outlook in Asia this year, Wood said.

India’s economic growth may accelerate to about 8.5 percent in the year ending March 31, Finance Minister Pranab Mukherjee has forecast. That would be the fastest pace since fiscal 2008.

Source: http://www.businessweek.com/news/2010-05-28/sensex-to-hit-record-on-profits-for-dsp-blackrock-update2-.html