Public Relations'Stocks may tumble next year on early exit'
The withdrawal of stimulus measures by central banks globally may send stocks tumbling next year, predict India’s money managers.
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Fund managers at SBI Asset Management and Tata Asset Management say the removal of liquidity from the system could result in a correction in stock prices after investors chased growth in emerging markets, making equities in Brazil, Russia and India among the world’s best performers this year.
“Policy makers will make tons of mistakes over the next year,” Navneet Munot, who oversees about $8.2 billion of assets as chief investment officer at SBI Asset Management in Mumbai said. “Either they’ll withdraw the stimulus measures too early or too late,” he said.
India’s benchmark Sensitive Index has gained 78 per cent this year, set for its best annual performance since 1991, as it joins a global market recovery from the biggest financial crisis since the Great Depression. Overseas investors poured $15.3 billion into Indian equities this year, approaching the record $17.2 billion bought in 2007, as Asia’s third-largest economy recovers at a faster pace than the US, Europe and Japan.
Indian stocks “will be extremely volatile and unpredictable” in 2010 after the benchmark’s best annual run in almost two decades limit gains in the near term, said Munot at SBI, a venture between Societe Generale Asset Management and State Bank of India. The Reserve Bank of India would withdraw the stimulus measures next year as private consumption returns, he said.
‘Global jitters’
The combined monetary and government fiscal stimulus is worth more than 12 per cent of India’s $1.2-trillion economy, which expanded at the fastest pace in six quarters in the three months to September 30. The US economy grew last quarter for the first time in a year.
“If the US starts tightening rates, jitters will be felt globally,” said Ved Prakash Chaturvedi, chief executive officer at Tata Asset who manages $5.4 billion in assets. “Interest rate movements and withdrawal of stimulus measures will determine the direction of Indian equities,” he said.
Indian stock valuations were expensive, Chaturvedi said. The Sensex trades at 16.5 times future earnings, compared with Hong Kong’s 14.7 times and Indonesia’s 13.2 times earnings.
Still, Nilesh Shah at Prudential ICICI Asset Management, says Indian equities will deliver better returns than developed countries over the next decade as the nation attracts higher long-term capital with investors betting on India’s $1.2-trillion economy growing at the fastest pace after China.
“India is the perfect hedge,” said Mumbai-based Nilesh Shah, deputy managing director at Prudential ICICI Asset Management, the nation’s third-largest money manager. “If we can convert capital flows into productive assets, then growth will be sustained for many years,” Shah said.