Global fundmen remain pro-growth, pro-risk

Institutional investors are putting less money into bonds and more into riskier assets, according to a Bank of America Merrill Lynch survey of 209 investors with $569 billion (Rs25.59 lakh crore) in assets under management.

“Growth optimism is also revealed by more investors saying they want companies to increase capex rather than return cash to shareholders,” said the report authored by Gary Baker and Michael Hartnett.

As many as 62% of investors think companies are under-investing in businesses and 44% see corporate balance sheets as having taken on less debt than they could safely afford.
Some 44% expect stronger global growth, up from 15%
in October.

Around 51% expect corporate profits to improve, up from 11% in October.

Half of the respondents were overweight on emerging market equities, in line with earlier consensus.

India is not expected to do badly, according to analysts.
“Over the last one month, the global markets have outperformed India, which makes India look attractive on a relative basis. One could see allocations after December,” said Vaibhav Sanghavi.

Indian markets have declined in the one-month period to Tuesday, with the Bombay Stock Exchange’s benchmark index shedding 1.77%. The Morgan Stanley Capital International Emerging Markets index closed flat.

Underperformance has followed the uncovering of a multitude of scams, including investigations of impropriety in the allocation of airwaves to mobile phone service providers, which is said to have cost the government in excess of Rs1.7 lakh crore.

Investors are likely to focus on strong economic numbers, say market watchers.

“Emerging markets are expected to do well as developed ones are still in the process of deleveraging. Within the basket, India is expected to do well after the release of gross domestic product (GDP) and purchasing managers index (PMI) numbers, which have been strong for the October-November period after an earlier period of consolidation,” said Jignesh Shah, head of investment strategy at Royal Bank of Scotland Private Banking.

The HSBC PMI numbers for November came in at 58.4, indicating healthy growth in manufacturing. The latest GDP numbers came at 8.9% for the September quarter.

The downside risk to expectations would be lesser than expected growth in China. Debt-related issues in the United States and in the European Union are the other risks to growth, according to the survey.

“China has been tightening interest rates in order to curb inflation and speculation but the government is also taking steps to increase domestic consumption which should bode well for growth numbers,” said Vaibhav Sanghavi, director at Ambit Capital.

The Sensex closed at 19799.19, up 0.55%, on Tuesday. The National Stock Exchange’s Nifty closed at 5944.10.

Foreign institutional investors have been net buyers by Rs 1.32 lakh crore in 2010.