India Must Extend Reform After ‘Weekend of Action':Samsun
Vijay Tohani, chief investment officer at Samsung Asset Management Ltd., which oversees about $82 billion of assets, comments on changes in India’s foreign ownership rules and the central bank’s monetary policy action.
Tohani made his comments in an e-mail from Singapore today.
The BSE India Sensitive Index (SENSEX), or Sensex, rose 0.4 percent to 18,542.31 in Mumbai, the highest close since July 25, 2011.
On foreign direct investment reforms:
“The announcements will help restore some confidence and credibility but will they be enough for India’s industrialists to step up the much-needed investment cycle? I don’t think so.
‘‘We need to see the reform momentum continuing. We have had four years of inaction and one weekend of action. Action is needed in power, energy and land acquisition before the capex cycle takes off.”
India ended a 14-month freeze in diesel prices last week to cut its fiscal deficit and allowed more foreign investment in aviation and retail industries, the biggest policy push in Prime Minister Manmohan Singh’s second term.
On RBI’s monetary policy:
“The RBI is happy that the government has come out of its comatose policy state. They will seek to see there’s no policy backtracking and no political backlash. Given increased global liquidity, the risk of higher inflation and fiscal slippage for India remains the RBI’s number one headache.”
Governor Duvvuri Subbarao today cut the cash reserve ratio to 4.5 percent from 4.75 percent, adding 170 billion rupees to the system. Three of 39 economists in a Bloomberg News survey predicted the outcome, with the rest forecasting no change.
On investment strategy:
“Value exists in high-beta sectors such as industrials, infrastructure, real estate and state-owned banks. However, I remain wary. One can expect a bounce from oversold positions, but for these sectors to continue to outperform we need to see their earnings prospects improve. That will only happen when the investment capex cycle is firmly under way.”
The Sensex has climbed 20 percent this year, helped by the highest foreign flows among the 10 Asian markets outside China tracked by Bloomberg. The 30-stock measure is the second-best performer among indexes with at least a $1 trillion value.
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