FPIs salute switch to growth mode & all that it brings

Mumbai: Overseas fund managers have turned more sanguine on Indian stocks after the Union Budget encouraged by the government's change in orientation towards growth over fiscal prudence.Investors have given a thumbs up to the proposed greater spending on infrastructure, privatisation of some state-owned companies and the move to allow foreign investors to own majority control of the companies they create in India."These are giant steps for India that will accelerate the growth path. The amount of money being injected into the Indian economic system will be positive for stock prices," said emerging markets veteran and Mobius Capital Partners’ founder Mark Mobius. “Of course we need to expect corrections along the way but the path forward is upward.”Fund managers say, the government's decision to set aside concerns over bloating fiscal deficit and focus on spending to boost the pandemic-hit economy will revive growth."Without the fiscal expansion, the medium-term outlook for Indian economic growth would have been challenged,” said Krishna Memani, US-based chief investment officer at Lafayette College."The fact that the government has focused on high-quality infrastructure spending, without being bound too much by near-term fiscal deficit consideration is what was needed and therefore likely to be a shot in the arm for an ailing Indian economy," said Memani.Indian stock indices have surged over 7 per cent in the last two days -- recovering most of the losses of the previous six sessions -- partly due to the focus on growth and partly on the relief that the government has not announced higher taxation measures such as wealth tax on the rich or a Covid cess in order to revive the economy.Brokerages have even raised index targets after the government's budget announcements, with Morgan Stanley expecting the Sensex to touch 55,000 by December 2021, against its earlier expectation of 50,000. This would mean a 10 per cent gain from the current levels, over and above the 95 per cent-plus surge that stock indices have seen since March 2020.Fund managers will be eyeing the quality of spending rather than just the quantity."It all depends on the type and efficiency of public spending. If the government genuinely manages to deliver on its promises, particularly with respect to infrastructure spending, then government investment may help to lower costs for private companies and thereby induce them to invest more, which could put India on a higher growth path," said Jan Dehn, London-based head of research at Ashmore Group. "...it all boils down to details: quality of government spending rather than solely the quantity," said Dehn.This collective bullish stance comes even as overseas fund managers are concerned about valuations.“Valuations in the Indian markets are certainly high. But that being said, that is the case world over. What the Indian equity investors have to look forward to, however, is the potential for meaningfully higher trend growth over the medium term," said Memani.

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