Indian Stock Gains to Be Capped on Growth Outlook, HDFC Standard Life Says

Indian stock gains may be limited over the next three to four months as global growth, inflation and valuation concerns prompt investors to avoid riskier assets, HDFC Standard Life Insurance Co. said.

“Our stance remains cautious,” Prasun Gajri, who manages $4.9 billion in assets as chief investment officer at HDFC Standard Life, said in an interview at his Mumbai office today. “I won’t be very aggressive in terms of taking any bets. The growth situation across the world is looking a little bit more alarming than it was two months back.”

Foreign fund inflows to India’s equities have climbed 56 percent this year, making the benchmark stock index the most expensive in Asia and among the BRIC markets that also comprise Brazil, Russia and China. Concern economies in the U.S. and Europe are losing momentum contributed to the steepest drop in three months in the MSCI AC World Index in August.

India’s economy expanded at the fastest pace in 2 1/2 years in the three months through June from a year earlier, and inflation has hovered around or above 10 percent since January. The Reserve Bank of India is under pressure to raise borrowing costs to cool price increases even amid signs a global economic recovery is faltering.

‘Worrisome’ Pace

“We are going a see a fairly extended period of sub-par growth in the western world, especially in the U.S.,” Gajri said. “Once you have such a large engine of growth going at such a slow pace, that’s worrisome. We are avoiding exposure to stocks which are strongly linked to the global economic growth.”

The Bombay Stock Exchange Sensitive Index, or Sensex, trades at 17.4 times estimated profit after last year’s biggest rally in 18 years. The measure added 0.6 last month, when the MSCI AC World Index dropped 3.7 percent as data signaled slowdowns in the U.S., China and Japan. Asian stocks rose today after U.S. manufacturing rose at a faster-than-estimated pace.

The Sensex climbed 0.2 percent to 18,238.31 at the 3:30 p.m. close, its highest in a week. The index had earlier gained as much as 0.8 percent.

In India, “stickier-than-anticipated” inflation, high valuations of local equities and the government’s record share sales may contribute to limiting gains in stocks, Gajri said.

Coal India Ltd., the world’s biggest producer, may raise 150 billion rupees ($3.2 billion) in the nation’s biggest initial public offering in October. The government plans to sell shares in as many as 68 companies to raise 400 billion rupees to fund infrastructure and cut the budget deficit.

‘Play Out Volatility’

Gajri, whose equity assets have almost tripled in the past year, is buying so-called defensive stocks, or companies whose sales are less affected by economic cycles, such as utilities and pharmaceuticals, and oil and gas shares to “play out the short-term volatility.” He declined to identify companies.

Gajri, 38, is betting returns from his holdings in equipment suppliers, asset owners, carmakers, construction, financial and consumer companies will outperform the Sensex during the next year.

“We are focused on the India growth story,” said Gajri. “The consumption theme will surprise us on the upside. The rewards will be good if one is willing to look through the volatile period.”