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Bet, pass or fold? Indian fund manager views

Investors in many Indian mutual funds lost a bundle in March. But could the rout continue?

Or should investors in Indian mutual funds, who have stood by as the Bombay Stock Exchange benchmark 30-issue Sensitive index plummeted 11.7 percent this month, stand pat -- and wait to benefit from a possible rebound?

The consensus among fund managers seems to be the worst is over, and the market has nearly bottomed out after a horrid month. Whether it will rebound soon is another matter.

Manish Modi, an associate fund manager at Pioneer Investments, a Boston-based firm with $1.5 billion invested in emerging markets funds, all with holdings in India, believes it will.

"A lot of positives have been clouded by short-term negatives," says Modi. "The hiccups in India now present good buying opportunities."

Those 'hiccups'? An influence-peddling scandal that threatened to topple the nation's fractious coalition government. Nearly daily news of new probes into insider trading and share price manipulation. And a series of broker defaults that ignited fears of a settlement crisis throughout India's equity markets.

Of the 222 Indian equity-linked funds tracked by Indian financial Web site myiris.com, only one managed not to lose money in March, but just barely. The puny Shriram Tax Cover fund had gained a slight 0.52 per cent through Wednesday.

At the other extreme, the three worst performing funds had plummeted by almost a third in value.

Yet look beyond the past month's headlines, and a compelling case can be made to stick with -- or buy into -- the Indian market, says Modi.

The Indian government appears committed to change, and is cutting tax rates, bringing down interest rates and moving ahead with a 'forward-looking' reform agenda, Modi says.

Leading Indian software stocks like Wipro Ltd and Infosys Technologies represent particularly good buying opportunities after falling 44.3 per cent and 29.5 per cent, respectively, in March, partly due to concern over the US slowdown.

That could actually lead to more work for Indian software houses as US companies, in a bid to save money, find they can development software more cheaply in India, Modi says.

"The cost of hiring a software programmer in India is a fifth of the cost of what it is here."

Prashant Jain, portfolio manager at Zurich India Asset Management which shepherds nearly Rs 2 billion in funds, also is bullish.

"We believe the market is close to its bottom and valuations are screaming buys," says Jain. "At current levels the entire market looks cheap to us, particularly tech and media stocks."

Jain too expects the interest and tax rate cuts initiated by Finance Minister Yashwant Sinha on February 28 to juice growth of both the economy and corporate earnings.

"By the year-end," he added, "we expect the Sensex to be 50 per cent higher than the current level."

Other fund managers are not nearly so optimistic, while some pooh-pooh all talk of a market rebound anytime soon.

Ved Prakash Chaturvedi, chief executive officer of Cholamandalam Cazenove Asset Management Company with Rs 7 billion invested in Indian equities, says he's not certain the market has bottomed out.

And he sees a peak of no more than 4,000 for the Sensex index over the next six months, up just 5.6 per cent from Thursday's close of 3,751.56.

But he adds given the recent sharp decline, India is a good market for investors with a three-year view.

Ketan Desai, a Bahrain-based fund manager who manages $25 million for Taib Everest Fund, is even more bearish on the Indian market. In fact, he has moved 95 per cent of his fund into cash over the past half month.

"There is more room on the downside. We see could see the market bottoming out in the 2,900-3,200 range on the benchmark," says Desai.

He describes the Sensex's rise from a low of 3,436.75 on March 13 as a technical rally in an otherwise bear market."

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