Fidelity bullish about Indian markets

Expects Asia to perform better in 2008

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Growth story

Fidelity feels that India's long-term growth remains intact, though 2008 is likely to see more volatility in the markets.

Corporate earnings outlook is expected to be reasonable though there could be slight dip in earnings growth in 2009.

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R.Y. Narayanan

Coimbatore, Dec 25 The Fidelity group, one of the largest investment groups globally, is confident that the Indian stock market would do well in the coming year, in spite of increased volatility.

In fact, the group feels that Asia would be a better bet for the global investors during the next year.

According to Mr Sandeep Kothari, Fund Manager, Fidelity Equity Fund, Fidelity Tax Advantage Fund and Fidelity India Growth Fund of Fidelity Mutual Fund, "India's long- term structural growth story remains intact although 2008 is likely to see increased volatility in the Indian markets", on the backdrop of developments in the international markets.

Looking into the coming year, he said the economic data was still robust and the Government was on course to spend about $400 billion on infrastructure and the consumer spending also was high. He said the outlook for corporate earnings was reasonable though the market expected slowdown in earnings growth for fiscal 2009 to about 16 per cent compared to 18 per cent in fiscal 2008. This lent credence to the view that the valuations, though high, would not lead to any bubble, he said in a release issued by the fund here.

Increased volatility

Summing up the market trend in the coming year, he said "while the long-term fundamental story is still intact and the domestic consumption and capex themes continue to be strong", because of global market developments and high valuations, the Indian market might see increased volatility and hence it would be important to "focus on companies with earnings visibility, quality management and execution capability".

Mr Michael Gordon, Head of Investment Strategy at Fidelity International, was of the view that 2008 could be one of the most interesting for equity markets this decade since "at least two of the three pillars that have propped up the equity bull markets of the West since March 2003 – leverage, consumer spending and corporate earnings – could be missing in 2008".

He said leverage that underpinned much of the rise in the markets was no longer available on attractive terms and "the era of easy credit is over". The private equity houses were on retreat and their "absence from the market – and more particularly, their willingness to buy assets – means that the traditional investment fundamentals such as earnings growth will need to take centre stage next year". The declining home prices in the US would dampen consumer spending that could affect business confidence.

Inflation worries

He expected inflation to capture the centre stage and there were early signs that economic growth and corporate earnings are being eroded by inflation, due to the rampant consumption of energy and commodities in Asia. He felt that investors in the equity markets of the West would however earn profits in 2008 if they are choosy about their stock selection and did not allow to be led by the main stock market indices.

He felt that diversification would be important and moving away from leveraged asset classes will be needed. In his view "Asia is the best place to see market exposure without leverage".

Conceding that share prices in Asia have gone up sharply in important markets like China, he said the story for investors there has been one of pure growth, not leverage. He said the region's "rising importance in global economic terms – and the continued growth there - to be reflected more in equity markets".

He expected the global monetary conditions to remain supportive. Interest rates continue to be low by historical standards and "central banks are more likely to cut the cost of borrowing than raise it, particularly if economic growth does stutter". He believed that shares would offer positive returns – "provided that investors are choosy about stocks and are less influenced by the make-up of benchmark indices".