MUMBAI, January 30: The country's bearish stock market will rebound sharply when a new government takes office in two months and a tight-fisted monetary policy is loosened, a top fund manager said on Friday."There is no reason to run scared," SBI Funds Management Ltd managing director Niamatullah said. "The economy is good, the growth is steady, the fundamentals are strong and the fiscal deficit is within control."
Uncertainty over which party will win the mid-term polls beginning next month, and due to finish on March 7, and expectations that the rupee will depreciate further barely dimmed Niamatullah's optimism.
He said the rupee, which closed at 38.75 to the dollar on Friday, could sink to 42 by March. But he advised investors to begin bargain hunting for stocks.
"From this level we can see a 30 per cent growth by May," he said. "This is a good time."
The benchmark index of the 30-share Bombay Stock Exchange sank to a 12-month low of 3,200.83 points on Wednesday, wilting under the pressure offoreign fund selling.
It closed on Thursday at 3,224.36 -- down 30 per cent or 1,381.05 points from 4,605.41 reached on August 6. The market was closed on Friday for Id. Niamatullah said the stock market was poised to break loose from a two-year bear phase when the south-east Asian economic turbulence blew into the country last August.
"There is panic in the community of FIIs (foreign institutional investors) that the domestic stock market will go the same way," he said. "I think this misgiving is very wrong."
But Niamatullah said the country's economic fundamentals and regulations were very different to the free-wheeling Asian tigers.
Tight controls on borrowings by companies from international markets and limits on foreign portfolio holdings ensured that India was not over-exposed on short-term debts, he said.
"We have realised the beauty of such regulation or financial management more after we have seen the fallout of the financial crisis in South-east Asian countries," he said.
FIIs are alsowary of that state of flux in the country's politics. The country is unsure of getting a clear winner in the three-way race between the Bharatiya Janata Party (BJP), Congress and the centre-left United Front (UF) alliance.
Opinion polls in mid-January showed the BJP and allies were likely to command the biggest number of seats but not a majority, while Congress is banking on Sonia Gandhi to restore its fortunes.
The UF minority coalition led by prime minister Inder Kumar Gujral fell in November after Congress withdrew its support.
Forecast gross domestic product (GDP) growth of 5.5-6 per cent for fiscal 1997/98 (April-March) was satisfactory, he said.
"The growth is slow and steady but it is something to be depended upon. We are not growing very fast at the same time we are not taking measures which are risky and dangerous."
Niamatullah said a monetary squeeze applied by the central bank to curb excessive currency speculation and ease pressure on the rupee's downward spiral was a welcome temporarymeasure. The Reserve Bank of India (RBI) raised its key bank rate by two percentage points to 11 per cent on January 16, and jacked up banks' cash reserve requirement to 10.5 per cent from 10 per cent.
The move set off a cash crunch which sent overnight call rates soaring over 100 per cent last week as banks which had over-committed funds scrambled to borrow and make up cash reserve shortfalls.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
