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Fund managers discount Kargil, say Sensex may touch 5,000 by March 2000

Our Correspondent in Bombay

Even as the Kargil conflict continues to keep the capital market on tenterhooks, managers of funds earmarked for emerging markets like India have cautioned investors against selling stocks.

Media reports quoted them as saying that the markets are firm and that the Kargil crisil will not degenerate into a war.

Fund managers said latest economic indicators hint at fresh spurt in demand for industrial output. This may take the form of larger rally shortly. So investors would do well to hang on to their portfolios until the crisis blows over. For the gains of a possible rally in near future may be too big to be ignored.

There are indications of a rally already. On April 28, the Bombay Stock Exchange's 30-share benchmark index, the Sensex, was at 3273. By May 25, it rose by 15 per cent to 3773 points. Today, it closed at 4125.25.

Foreign institutional investors or FIIs have bought nearly Rs 1.18 billion ($ 29.6 million) worth shares in Indian stock markets between May 27 and June 14, according to the Securities and Exchange Board of India.

In normal times, the numbers for mid-May would be considered small. But in the context of the border problem, they are considered significant. On a couple of occasions, the net buying by foreign funds exceeded $65 million a day.

The FII buying support, market dealers said, proved critical for the overall sentiment. Had the FIIs resorted to selling, the Sensex would have gone into a tailspin, they averred.

Fund managers said that India's economic foundations are perceived as strong, so it is unlikely that investors would risk selling Indian stocks at this juncture. There are enough signals of a recovery from recessionary economy. One of them is serious restructuring by Indian companies, they pointed out.

The Index of Industrial Production grew 6.8 per cent in April on year, up from 2.5 per cent in March and 4.8 per cent in April 1998. The growth in IIP in April this year is the highest in 14 months.

Manufacturing output, which contributes 79 per cent to the IIP, grew 7.8 per cent in April compared with 3.8 per cent in April 1998. Industrial output rose sharply in cement, commercial vehicles (trucks), two-wheelers, auto-components, consumer durables, steel and petroleum refining sectors.

In one of its recent report, the Centre for Monitoring Indian Economy said that in April, consumption of petroleum producers rose 12 per cent during 1998-99 fiscal, commercial vehicle sales rose 29 per cent while output of two-wheelers rose nearly 20 per cent.

Experts opined that the industrial production would be relatively stronger this year, in the wake of higher agricultural production and marginally higher infrastructure investments and exports. The number of investors aware of these facts is rising and they are learning not to sell at the drop of the hat, they said.

In recent times, it has become a feature of the BSE that the Sensex rebounds with increased vigour, days after it plummets due to non-economic reasons. And every time this has happened, it offered excellent buying opportunities. Barring the eventuality of a full-scale war, the Sensex would not fall much below current levels, fund managers said.

The market is also drawing hope from the belief that inclement weather will perforce push the two warring sides in Kashmir to a ceasefire.

However, there were concerns that the fiscal deficit, already under considerable strain, could go beyond control if the border problem drags on for long.

By and large, fund managers remained optimistic in outlook that there will not be any war. So, they have no plans to sell. Some of them even foresee a situation where the Sensex would breach the 5,000 mark by March 2000, should the Kashmir imbroglio be resolved amicably.

They also said at current levels, the valuations of Indian stocks are very attractive. This might ensure increased inflows into Indian capital markets both from local and foreign funds.

UNI

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