U.S., Europe Crisis to Boost Flows to India, Reliance Asset Says

Sunil Singhania, head of equities at Reliance Capital Asset Management Ltd., India’s biggest money manager, comments on the outlook for the nation’s stocks. He spoke in an interview with Bloomberg UTV. Reliance Capital’s mutual fund unit manages $23 billion in assets.

Reliance Growth Fund, managed by Singhania, has risen 37 percent annually in the past 10 years, the most among active funds focused on Indian equities with a record going back a decade, according to data compiled by Bloomberg.

On U.S., Europe Debt Problems:

“If you spend more than what you earn for a prolonged period of time, there’s going to be a time when you have to bear the pain of it. That is what most of the countries in Europe, as well as the U.S., are undergoing. We feel the problem is not insurmountable. Though challenges would be there, it’s not something which is going to cause too much of a concern in the near term. The good thing is that the countries are realizing that they need to cut expenses.

‘‘If there’s going to be some catastrophe in Europe or the U.S. then in the near term all the global markets are going to get hit. Even now more than 85 percent of global equity money is invested in developed markets and only 15 percent is in emerging markets. The problems in Europe and the U.S. will probably hasten the move and make allocation from global guys a little more balanced. This would favor emerging countries, of which India would be an important part.”

On the outlook for interest rates:

“A few global gurus have been of the opinion that it makes sense to tighten up to sacrifice growth to some extent. At the same time, if too many shocks like this come then sentiment can take a beating. That is something which India cannot afford. Already we are seeing new project announcements being deferred. The predominant reason would be interest rates. India can’t afford its entrepreneurs becoming more careful in their expansion plans.”

The Reserve Bank of India has raised rates 11 times since the start of 2010, the most aggressive tightening among major economies in Asia.

On outlook for economic growth:

“There is no doubt in our mind that India is going to continuously keep growing on an annual basis. There will be periods where you might see growth slow. Too many shocks have come at the same time, which are leading to a perception and a view that probably if things don’t improve then the next two quarters can be really tough.

‘‘Hopefully by October-November we should again start to see some revival in activities, led by interest rates coming off to a certain extent, or at least peaking, and some policy decisions from the government that can kick-start the economy.

‘‘The market is discounting a lot of things, unless there are more shocks. The entrepreneurship spirit is alive. It is upon the government to ensure that it is kept alive and kicking.’’

Earnings reported by eight out of 19, or 42 percent, of Sensex companies have lagged behind analyst estimates for the quarter ended June. That compares with 33 percent that missed forecasts in the previous quarter, according to Bloomberg data.

On Holding Cash:

‘‘The reason why we have not taken a cash call is that we don’t feel there’s a strong reason for the market to correct significantly. There will be short-term movements. If things start to move a bit more positively, and as not too many people expect too much positiveness, the impact on the upside could be much larger than what it has been on the downside.

‘‘It took 60 years to become a $1 trillion-$1.5 trillion economy. Probably in the next 10 years we will be a $5 trillion to $6 trillion economy. Three times the wealth created in the last six decades is going to be created in the next 10 to 12 years. The direction is very clear.’’

Reliance has cut cash holdings in its biggest stock fund to 3.6 percent, the lowest level since at least the collapse of Lehman Brothers Holdings Inc. in September 2008.

On financial-services stocks:

‘‘Financials is one of the largest sectors in the economy. The combined size of the balance sheet will double in four to five years. Profit should also double in four to five years. Banks are now much stronger than what they were 10 to 15 years ago. The systems are very strong and we are an under-banked country. It is both a consumption and a growth theme.’’

Lenders and finance companies accounted for 20 percent of Reliance Growth Fund’s 70-billion rupee assets on June 30, data compiled by Bloomberg show.

On infrastructure stocks:

‘‘We’re positive on infrastructure, but too many headwinds have hit the sector at the same time. Land acquisitions and environmental clearances are issues, interest rates have shot up and equity raising has been difficult. If we intend to be a $6 trillion economy, we cannot just eat pizzas, see movies and hope to reach there. We need infrastructure and that is where the opportunity lies.’’

Source: http://www.bloomberg.com/news/2011-08-05/u-s-europe-crisis-to-boost-flows-to-india-reliance-asset-says.html