Birla Sees India Raid Bringing Stock Prices to Attractive Levels

  • Fund to reduce cash hoard after market declines: co-CIO Patil
  • Cash levels doubled as valuation, global-event risk increased

Pricey stock valuations had prompted Birla Sun Life Asset Management Co. to double its cash levels. Now, India’s fourth-biggest money manager says it will reduce the hoard as declines after the nation’s attacks on terrorists camps in Pakistan present a buying opportunity.

“We will look to deploy into this correction as we don’t want to hold cash for long,” Mahesh Patil, who oversees $22.4 billion in assets as co-chief investment officer, said in an interview in Mumbai.

Birla Sun Life over the past few months boosted its cash to about 8 percent of assets from 4 percent it usually holds as Indian stocks neared record highs and concerns about weakness among European banks buffeted markets. While U.S. stocks posted a second monthly drop, the S&P BSE Sensex capped its worst week since February on concern tensions between India and Pakistan may sour sentiment among foreign funds who bought the most shares last quarter since March 2015.

“It doesn’t look like the conflict will escalate but if there’s a slight correction, even for global factors, we will look at it as a buying opportunity," said Patil.

Both nations moved to curb tensions after Prime Minister Narendra Modi’s government said it killed terrorists just across the border late Wednesday. There’s no plan to aggravate the situation, an Indian Foreign Ministry official told reporters Thursday. While Pakistan is ready to defend its territory, the country wants peace to focus on economic development, Prime Minister Nawaz Sharif said in a statement on Friday.

Rate Cut

The Sensex rallied 3.2 percent for the quarter and the rupee capped a third monthly climb. The gauge climbed 1.4 percent at the close on Monday, recouping half of last week’s 2.8 percent retreat.

The gains have come as India’s world-beating expansion lured investors, while optimism that slowing inflation will allow new Reserve Bank of India Governor Urjit Patel to reduce interest rates from a five-year low at a review on Tuesday has also bolstered sentiment.

Birla’s Patil said he is bullish on companies tied to the local economy including automakers, media and cement makers because they gain from lower borrowing costs. He’s not alone in seeing equity losses arising from the military offensive as an opportunity.

“It’s a good time to use the declines to buy stocks linked to the economy as strikes by India don’t alter the economic outlook,” Sunil Subramaniam, chief executive officer at Sundaram Asset Management Co., which oversees the equivalent of $3.7 billion, said by phone from Mumbai on Thursday. The attacks don’t “represent diplomatic, economic change in the government’s stance,” he said.

Pay Hike

Maruti Suzuki India Ltd. jumped 3.7 percent to a record on Monday after the nation’s largest carmaker posted its biggest monthly sales growth in more than two years. Birla Asset held 2.13 million shares, or 0.7 percent of the company, on Aug. 31, according to data compiled by Bloomberg.

Asia’s third-biggest economy grew 7.1 percent in the June quarter from a year earlier, the fastest among major economies. Consumption is forecast to rise as the recent $13 billion salary boost for government staff boosts demand and a good monsoon after back-to-back drought lifts farm output and rural incomes, according to the nation’s central bank.

Foreign investors have pumped $7.5 billion into Indian equities this year, more than double the $3.3 billion they invested in all of 2015. Local mutual funds have bought $1.7 billion of shares since Jan. 1, extending last year’s record purchases of $10.2 billion.

The inflows have fueled the Sensex’s 23 percent rebound from a low reached in February. Companies on the measure trade at 16 times projected 12-month earnings, down from a multiple of 16.7 times last month, which was the most expensive since January 2011.

Fund Demand

Rich valuations have made it difficult for local mutual funds to pick winners. DSP BlackRock Micro Cap Fund, managed by a venture between the world’s largest money manager and the DSP Group, limited client inflows in August after an index of small-cap companies soared to a record. The gush of money into mutual funds since Modi took office in May 2014 has added to the problem of finding cheap stocks.

Birla Sun Life Top 100 Fund, managed by Patil, has seen a three-fold jump in its assets to 24 billion rupees since the end of September 2014. The fund has beaten 91 percent of its peers in the past five years, data compiled by Bloomberg show. It has climbed 18 percent annually during the period, compared with the S&P BSE-100 Index’s 14 percent advance.

Lenders including HDFC Bank Ltd., the nation’s most valuable, made up 22 percent of total assets on Aug. 31, the data show. The fund added to its holdings in Tata Motors Ltd., owner of Jaguar Land Rover, and NTPC Ltd., the nation’s largest power generator in August.

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