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Birla Sun’s Patil Bets on Indian Phone, Auto Stocks for Growth

Birla Sun Life Asset Management Co., India’s fifth-biggest fund manager, is betting phone companies and carmakers will extend gains next year in the world’s best performing major stock market as economic growth spurs spending.

Bharti Airtel Ltd., India’s biggest wireless operator, and Tata Motors Ltd., the owner of Jaguar Land Rover, are among companies Mahesh Patil, who oversees about $3 billion as head of domestic equities at Birla Sun Life in Mumbai, has been buying in the past six months, according to data compiled by Bloomberg. The stocks are among the top 10 holdings in his biggest stock fund, the data show.

“We are reasonably positive on telecom,” Patil said in an interview today, while declining to comment on specific stocks. A scandal involving the government’s sale of licenses two years ago at below market prices “will strengthen the incumbents.”

Patil is optimistic on growth in India, which Nouriel Roubini, the New York-based economist who predicted the global economic crisis, forecast last week to expand more than China in the next decade. Earnings of companies in the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, may expand by an average 19 percent in the year through March 2012, Citigroup Inc. said in a Nov. 30 report.

The Sensex has climbed 15 percent this year, the most among key indexes in the world’s 10 largest stock markets, as optimism over India’s economic growth lured a record amount of foreign funds into the country’s equities. Companies in the stock gauge are valued at an average 19.1 times estimated profit, the most among Asia Pacific stock benchmarks.

‘Sound Wicket’

“We are on a pretty sound wicket,” Patil said. “There will be bouts of volatility; it could be global or domestic events. But the medium to long-term outlook is positive.”

Patil’s Birla Sun Life Frontline Equity Fund has beaten 95 percent of its peers in the past five years, according to Bloomberg data. His firm has $14.9 billion in assets.

The Sensex has fallen 4.9 percent from a Nov. 5 peak through last week amid corruption scandals involving the government’s issuing of the telecom licenses and some companies handling of loans. Morgan Stanley said Nov. 25 that the nation’s stocks faced their “stiffest test” amid the probes.

A threat by the government to cancel some of the licenses will be "detrimental for the new players,’’ Patil said.

Best Performer

The government auditor submitted a report to Parliament on the below-market-price sale of licenses on Nov. 16. Bharti’s 10 percent gain since then through Dec. 3 makes it the best performer in that period on the Sensex, which added 0.5 percent.

Rising salaries and an expanding workforce will boost Indian “discretionary consumption” on products from cars to entertainment, the fund manager said. Government spending and corporate expansion may boost infrastructure-related shares, lenders and large equipment makers, while software exporters and drugmakers stand to gain from a global recovery, he said.

Automakers and lenders make up seven out of the top 10 performers on the Sensex this year.

Patil is avoiding cement makers as excessive supply drags on prices of the raw material, though said he may change his stance should demand and infrastructure spending pick up.

Prime Minister Manmohan Singh’s government plans to double spending on infrastructure to $1 trillion in the five years to 2017, according to the country’s Planning Commission.

Purchases of Indian equities by overseas fund managers this year are at a record $29.4 billion as investors sought to benefit from the country’s economic expansion. India’s economy grew 8.9 percent in the last two quarters, the fastest pace of growth among the world’s major economies after China.

Earnings of Indian companies will expand by an average 18 percent to 20 percent for the next two to three years, Patil predicts. “India stands out clearly in terms of its growth outlook,” he said.

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