Biggest India Fund Managers See Monsoon Rains Outweighing Brexit

  • ICICI Prudential, SBI Funds say declines a buying opportunity
  • Companies linked to domestic economy, consumption good bets

Indian money managers clung to equities during the worst selloff in four months, speculating the elements that powered this year’s stocks rally are strong enough to withstand global turmoil from the Brexit vote.

Local funds bought a net 1.15 billion rupees ($17 million) of shares on Friday, data compiled by Bloomberg show, even as the benchmark index slumped 2.2 percent. The purchases capped the first weekly inflow in June, and fund managers said they assign greater weight to an improving economy and prospects of a strong monsoon.

“We will be concerned if the monsoon turns adverse, not by Brexit,” said S. Naren, chief investment officer at ICICI Prudential Asset Management Co., the nation’s second-biggest with $26 billion in assets. “We see Brexit as a buying opportunity.”

Domestic funds have bought a net 105 billion rupees ($1.5 billion) of shares this year as company profits recovered after declines in four of the last five quarters and data showed India growing faster than all other major economies. Increased public spending will help maintain the growth momentum and India’s record reserves will act as buffers against Brexit-fueled turmoil, according to SBI Funds Management Ltd.

Improved Macros

“Investors should use a period of heightened volatility to their advantage rather than get swayed by it,” Navneet Munot, who oversees $16 billion in assets at SBI Funds, said in a phone interview. “With improved fundamentals, our ability to weather such storms is relatively better.” Munot said he is bullish on consumer-discretionary companies.

The S&P BSE Sensex has climbed 1.3 percent since Friday when it slumped as much as 4 percent. While all 30 stocks fell at when trading began on June 24, gains in companies tied to the economy, such as Bajaj Auto Ltd., helped the gauge pare losses. Financial-services companies Max Financial Services Ltd. and Bajaj Finserv Ltd. rallied to records.

To be sure, companies with ties to the U.K. may suffer. Tata Motors Ltd., whose Jaguar Land Rover unit gets a quarter of its sales from Europe, rose 1.6 percent on Wednesday after slumping 10 percent in the past three days. Tata Steel Ltd., which has factories in the U.K. and Netherlands, added 0.7 percent after declining 7.1 percent over Friday and Monday. A gauge of technology shares recovered after three straight days of losses as Europe accounts for 28.5 percent of India’s software exports.

Capital Flows

Deutsche Bank on Monday reduced Sensex’s year-end target to 27,000 from 29,000, citing increased uncertainty. Global funds sold $85 million of shares Friday and $42 million so far this week, paring the year’s inflow to $2.7 billion. The purchases are still the third-highest among Asian markets tracked by Bloomberg. Indian mutual funds bought a net 804 million rupees of shares on Monday, data from the market regulator show.

“Brexit will compel a few foreign funds to lighten their positions in Indian markets as they look for dollar returns," Nikhil Johri, chief investment officer at Mumbai-based Trivantage Capital Management India Pvt., said by e-mail.

India’s growth prospects also depend on the monsoon’s progress. Total rainfall has been 13 percent below average since June 1, down from 25 percent earlier this month. Central region, home to the nation’s biggest soybean producer, may get above normal rain till July 10, the weather office said.

Record Reserves

Finance Minister Arun Jaitley and central bank Governor Raghuram Rajan on Friday said record $364 billion reserves will stand India in good stead. The U.K. alone accounts for 3.4 percent of India’s exports and 1.4 percent of imports, HDFC Mutual Fund said in a note, calling Brexit a “non-event.”

Declines in Indian equities after adverse global events such as the September 2001 terror attacks and the selloff that followed the Federal Reserve’s push toward tapering stimulus in June 2013, have proved to be buying opportunities, the largest money manager said.

The Sensex has rebounded 17 percent from the lows reached in February and is poised for the first quarterly advance since the three months ended March 2015.

“People who missed the January-February opportunity should use this one to increase their equity allocation rather than wait for markets to stabilize,” ICICI’s Naren said.

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