Title: The other emerging red-hot stock market

Sub-title: Forget China. India’s stock market is also booming, yet valuations there still remain more down to earth.

 

Mumbai - Ajay Argal slammed the taxi-cab door shut, barking instructions into his cell-phone while keeping an impatient reporter at bay. “Sorry,” said Argal sheepishly, who from his perch at Birla-Sun Life Asset Management handles Excel India Fund’s investments in the sub-continent. “I’ve got a lot of work these days.”

 

Argal isn’t kidding.  Since he took over the new mandate two years ago, the benchmark SENSEX exchange, led by a slew of global-scale conglomerates including Reliance Industries, ICICI Bank and Mahindra & Mahindra Ltd., have more than doubled. As a result, Argal, like many fund managers, is in constant demand as an interview source by CNBC India and the country’s many other news channels

 

India is on fire. In the most recent quarter, the country’s real GDP grew by an eye-popping 8.9 percent, a rate that the Indian government believes is sustainable during the coming years. Furthermore, the country is increasingly coming into its own on the international stage, drawing attention for accomplishments ranging from the strength of its IT industry to its growing military and trade ties to the United States.

 

Yet despite the high stock valuations among many Indian firms, Argal believes that even better times lie ahead. As an example he cites cell-phone provider Bharti Airtel, one of Excel India Fund’s top holdings. “Canadian cell-phone companies have about 16 million subscribers,” says Argal. “In India, cell phone providers sign up more subscribers than that each quarter.” In fact, India’s 200 million subscriber base is expected to more than double during the next few years.

 

According to Bhim Ashdir, president of Excel Funds Management,  more than $250 million in new money has flowed into the company’s India fund last year, in large part as a result of the SENSEX’s strong surge. That’s faster than money came in during the late 1990s after he started the fund in the basement of his Mississauga home with $150,000 in seed capital.

 

At the time few people were interested in India which was perceived as corrupt and backwards with few prospects. Well, times have changed. Late last year, Excel Funds Management crossed the billion dollar mark in terms of funds managed, including $600 million in the India Fund.

 

Bharti Airtel isn’t the only Indian company that has been making waves on the international stage. Tata Motors is currently trying to produce a car that can be sold domestically for a just $2,500.  Arcelor Mittal, owned by Indian-born Lakshmi Mittal is now the world’s largest steel company. And late last year, reports emerged that the surging price of Reliance Industries shares briefly turned industrialist Mukesh Amabani into the world’s richest man.

 

Yet despite increasing bullishness towards India, cautionary notes are in order. The World Economic Forum, which held its India Economic Summit 2007 late last month outlined key risks facing the country during the coming years ranging from demographic challenges, the lack of freshwater, infectious diseases and creeping global protectionism. Inflation too remains a concern and broader Indian markets are becoming pricey according to some measures.

 

Yet like Argal, Ashdir remains optimistic. He cites several factors that could further boost stock prices over the medium term.  “Indian pension funds still are not allowed to hold stocks and less than 5% of Indian households own stock,” says Ashdir. “Furthermore, half of the country’s the population is under 25 which means a staggering number of Indians are heading into their peak earning and consumption years.”

 

Add to that the fact that the country’s consumer credit to GDP ratio remains fairly low, coupled with the rafts of foreign money flowing into the sub-continent and you have the makings of significant upside potential. If that’s true, Argal, his Mumbai-based fund manager, will be barking a lot more buy orders into that cell phone of his.

 

Peter Diekmeyer (peter@peterdiekmeyer.com) is a Montreal-based business and economics writer.

 

 

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