MUMBAI - India-based fund managers are growing more confident in the domestic economy and plan to raise allocations to auto makers and private sector lenders, betting that no change to interest rates will underpin an economic recovery, a Reuters poll showed.
The expected allocations for April-June follow the lead of foreign investors who have already been investing in India-focused shares, such as Tata Motors Ltd, since the start of the year. That has sparked a rally in the broader NSE index which climbed to a record high last week and is up 7.5 per cent this year.
The confidence in India marks a shift from last year when IT outsourcing firms and drug makers featured among top gainers as investors sought more exposure to the global economy, with economic growth at its weakest pace in a decade.
Sentiment has improved on expectations the Reserve Bank of India will keep interest rates on hold, after tightening policy by three-quarters of a percentage point since September.
Markets also widely expect the opposition Bharatiya Janata Party will win elections concluding in May and spur new private investments, especially in infrastructure. "We are making a play on the broader economy because as macros improve, rate-sensitives will clearly benefit, and these are all liquid large index constituents that are better placed to capture the improvement in the economy," said Neelesh Surana, Equity head at Mirae Asset Investments in Mumbai.
Thirteen out of 18 fund managers in a survey carried out between April 2-8, said they would increase their holdings in vehicle manufacturers and auto parts makers in the next three months, up from 3 fund managers in a 16 member poll in January.
Auto makers are in the midst of a rally with the NSE auto index up 17.5 per cent since the start of February.
An industry body predicted last week that car sales in India would rise this fiscal year after two straight years of decline, albeit only marginally, fuelled by stronger economic expansion and tax cuts under a new government.