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Wednesday, January 20, 2010

New share issues to sustain fund flows into India

Foreign fund flows into India in 2010 could match or exceed a near-record $17 billion in 2009 but will not give the Mumbai stock market the same boost this year, as a flood of new share sales soak up cash and cap overall gains.

Initial offerings by the likes of Jindal Power or new shares sales by state-owned firms such as miner NMDC Ltd could be magnets for overseas investors, and would put further upward pressure on the Indian rupee .

The long-term case for investing in India, like China, is clear: a billion-plus population driving consumption-led growth. Analysts see 2010 fund inflows easily matching last year's.

Indian firms raised about $19 billion in new equity in 2009, and Morgan Stanley figures they could raise $70 billion over the next three years. Overseas investors tend to be the biggest buyers of fresh Indian equity.

"Within emerging markets, I would say there is no alternative to India and China," said Vinay Gairola, managing director and portfolio advisor in Mumbai with Atlantis Investment Advisors, a $2.9 billion London-based fund manager.

But India has had a tendency to underperform relative to its potential and to China, and its higher valuations may hamper the appeal.

Michiel van Voorst, who helps manage a 500 million-plus euro ($714 million) Asia-Pacific portfolio for Dutch fund manager Robeco in Hong Kong, said India valuations look steep in the context of its high interest rates and is underweight India relative to the MSCI Asia Pacific index.

"We do see the growth, but we also have a couple of risk factors that we keep in the back of our mind," said van Voorst, whose India weighting has been steady at about 4 to 5 percent.

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