Indian Stocks are Better Long-Term Bet, Franklin Says

March 10 (Bloomberg) -- India offers better long-term returns on stocks than China given the outlook for economic growth and corporate earnings, according to Franklin Templeton Investments.

India’s economy may sustain faster expansion from a smaller base as “favorable” demographics boost consumption, said Stephen Dover, who oversees $25 billion as managing director and international chief investment officer for Franklin Templeton Investments’ Local Asset Management groups. Price clearing and the exchange rate are “freer” in India, he said.

“If we were to make one long-term bet, we would make it on India rather than China,” he told reporters in Singapore. “India is, in my opinion, still quite underinvested. Looking at India, India has the opportunity for some of that growth that China has had and the difference is that investors can participate in that growth.”

The Bombay Stock Exchange’s benchmark Sensitive Index has lost 2.2 percent this year, after rallying 81 percent in 2009, as the economy dodged the worst of the global recession. The gauge narrowly beat the 80 percent increase in China’s Shanghai Composite Index to rank among the 10 best performers globally.

Dover said 90 percent of discussion at conferences is focused on China. “For investors really looking for opportunities, the footnote is on India,” he said.

Earnings Growth

Earnings in India may grow 20 percent over the next three years, according to estimates by Sukumar Rajah, chief investment officer at Franklin Templeton Asset Management India Pvt. The company counts Infosys Technologies Ltd., Nestle India Ltd. and Bharti Airtel Ltd. among its holdings in the country.

San Mateo, California-based Franklin Templeton oversaw $189.5 billion in non-U.S. stocks, $66.3 billion in domestic equities and $187.6 billion in fixed-income funds as of Dec. 31. These include emerging-market funds managed by Mark Mobius, who correctly predicted on March 23 the start of a “bull-market” rally. The MSCI Emerging Markets Index rose a record 75 percent in 2009.

India stocks may “outpace” other emerging markets as the country’s economy strengthens, Mobius, Singapore-based chairman of Templeton Asset Management Ltd., said in a question and answer interview posted on the company’s Web site on March 1.

Finance Minister Pranab Mukherjee said in his Feb. 26 budget speech that India had weathered the worst global economic crisis since the 1930s and that the South Asian nation’s growth may reach 10 percent in the “not-too-distant future.”

China, Brazil

Still, Franklin Templeton continues to find investment “opportunities” in China, particularly as consumer spending increases. The investment firm holds shares of China Yurun Food Group Ltd., Parkson Retail Group Ltd. and Ctrip.com International Ltd., Rajah said.

Among other emerging markets, Franklin Templeton is also optimistic on the outlook for Brazilian equities, according to Frederico Sampaio, portfolio manager at Franklin Templeton Investimentos Brasil. The benchmark Bovespa index rallied 83 percent last year and has gained 1.4 percent so far in 2010.

Commodity stocks may lead gains in Brazil this year with an expected pickup in the U.S. economy, Sampaio said in an interview before the briefing today. Vale SA, the world’s biggest iron-ore producer and his top holding, may benefit as prices for the commodity will probably rise after negotiations currently taking place with buyers, he said.

Shares that benefit from the domestic outlook for Brazil’s economy may be a better bet over the long term, Sampaio said.