India's GDP Growth May Lure Record Foreign Fund Inflows, IDBI Federal Says

Indian stock purchases by foreign funds in 2011 could exceed this year’s record inflows as the nation’s robust economic and corporate earnings expansion lures investors, according to the local partner of Ageas, the insurer that groups the remains of Fortis.

“The stage is set for it,” Aneesh Srivastava, who manages about $352 million in assets as the Mumbai-based chief investment officer at IDBI Federal Life Insurance Co., said in an interview today. “Money chases growth. Returns in foreign economies are small and they have no other option but to look at growth opportunities outside.”

Foreign inflows into Indian equities have climbed to a record 1.3 trillion rupees ($28.8 billion) this year, according to data on the website of the Securities and Exchange Board of India, driving the Bombay Stock Exchange’s benchmark Sensitive Index, or Sensex, up 15 percent in 2010, the most among key indexes in the world’s 10 largest stock markets. “We are substantially underestimating the appetite and desire of foreign investors to buy Indian assets.”

Srivastava, 41, predicts India’s $1.3 trillion economy to grow at 8.5 percent for the year through March 2012, accompanied by a 20 percent expansion in corporate earnings. Gross domestic product grew 8.9 percent for a second straight quarter in the three months through September, maintaining the fastest pace among the world’s major economies after China.

‘Crude a Dampener’

Srivastava sees a “high probability” that the Sensex will reach 23,000 by March 2012, a 14 percent gain from today, and is “bullish” on the banking and oil & gas sectors.

“On an average, our bias will be to build portfolios with banks and oil & gas stocks,” he said.

Rising crude oil prices are the biggest risk to markets, Srivastava said. India, which imports more than 75 percent of its crude oil needs, is forecast to account for 15 percent of the global increase in energy demand to 2030, according to the International Energy Agency.

“Crude is a dampener. There is a severe winter in Europe, which is driving up demand for heating fuels and pushing prices up,” he said. If crude oil continues to rise, “economies like India could suffer and stock markets could correct.”

Thousands of airline and train passengers were marooned across Europe during a storm system that produced Britain’s worst early snowfall in 17 years this week.

Crude oil in New York trading reached $90.76 a barrel on Dec. 7, the highest level since 2008. Oil has gained 13 percent this year.

Credit Expansion

A pick-up in corporate demand and government spending will boost lending over the next 12 to 15 months, Srivastava said. He estimates loan growth of 22 percent for Indian lenders in the financial year 2012.

“The best way to play the banking theme is through large and clean private-sector banks,” Srivastava said, as they tend to do better in a rising interest-rate environment. He declined to comment on specific stocks.

Srivastava is also investing in oil companies’ stocks on expectations government policy changes may allow for market- driven fuel prices. India freed gasoline prices from state control in June, while continuing to set rates for other fuels, including diesel. The nation’s government will decide on a gas pricing policy in the next six to eight months, oil secretary S. Sundareshan said on Oct. 30.

“Policy direction is indicating that certain reforms could happen. If reforms clearly pan out, this is one sector that could outperform,” Srivastava said.