Overseas Buying of Indian Stocks to Be Sustained Amid Growth, Bhave Says

Record overseas buying of Indian stocks is unlikely to reverse as an accelerating economy and share sales by companies including the world’s largest coal producer lure investors, the capital markets regulator said.

“We have no reason to believe, at least if we go by historical evidence, that there will be a sudden reversal,” Securities and Exchange Board of India Chairman C.B. Bhave said in an interview with Bloomberg UTV. For overseas investors “it’s important that there is supply of enough paper” otherwise asset prices may surge, he said.

International investors have bought $21.8 billion of equities this year driving the Bombay Stock Exchange’s Sensitive Index to near a record. Coal India Ltd.’s share sale this month will add to the 753 billion rupees ($17 billion) raised by the nation’s companies this year.

“India is clearly emerging as a key asset globally,” Prashant Jain, chief investment officer at HDFC Asset Management Co., which manages $21 billion in assets, said on Oct. 6. “How many economies are there in the world that are of our size, growing at 8 to 9 percent, where neither the companies nor the households are leveraged?”

The International Monetary Fund on Oct. 6 raised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent, citing strengthening local consumer demand. The $1.3 trillion economy, Asia’s second-fastest growing, expanded 8.8 percent in the three months to June.

‘Room to Support’

The Sensex has rallied for a record seven straight quarters. The gauge has increased 16 percent this year, making it the best-performing among 10 of the world’s largest markets.

The gains have made India the most expensive among the world’s 20 largest stock markets, according to data compiled by Bloomberg. Stocks on the Sensex are valued at 19.2 times earnings, compared with 13.4 times for Brazil’s Bovespa Index, 7.8 times for Russia’s Micex Index and 15.1 times for China’s Shanghai Composite Index, among the so-called BRIC markets.

The government aims to raise $8.9 billion in the year ending March 31 selling state assets including Coal India, Steel Authority of India Ltd. and Indian Oil Corp. Coal India may raise 150 billion rupees, two people with knowledge of the matter said in August, making it India’s largest.

“There is enough room to support that kind of paper,” Bhave said.

Bhave also said the regulator plans to cut time taken for companies to start trading from the day they sell shares to seven days from the current 10 to 12 days to improve transparency, he said.

“The Indian market has a bright future,” Bhave said. “It has demonstrated its resilience through this tumultuous period of 2008-09 and then the subsequent reversal of that trend.”