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Dalal Street fascinates Middle-East, NE Asian investors

India’s booming stockmarket, which hit record highs this week on the back of robust economic growth, is pulling in investors from northeast Asia to the Middle East, a fund manager said on Wednesday.

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MUMBAI: India’s booming stockmarket, which hit record highs this week on the back of robust economic growth, is pulling in investors from northeast Asia to the Middle East, a fund manager said on Wednesday.

UK-based Forsyth Partners Group Holdings, which launched a product that invests in a diversified group of funds in India, believes mid-cap companies with market value of about $500 million could outperform in 2006. “Our biggest demand for this Indian product is coming from Korea, Japan, Taiwan and the Gulf region,” chief executive Paul Forsyth said. “There has been a shift towards India and away from China.” India’s $700-billion economy, Asia’s third-largest, is forecast to expand 8.1% in the current fiscal year that ends in March, with manufacturing seen growing 9.4%.

“India has lost out to China on FDI inflows, but you have better legislation, accounting practices and corporate governance, which is all reflecting in share prices,” said Forsyth, who manages assets worth $1.3 billion across major global and emerging markets. Forsyth’s open-ended ‘Indian fund of funds’with more than $70 million in institutional and retail money, has invested in 12 diversified schemes in India, where Bombay Stock Exchange Sensex climbed above 10,000 points this week for the first time. The index jumped 42% in 2005 and has risen nearly 7% so far this year. A fund of funds is a product that invests in a variety of other funds. India’s $45 billion mutual fund industry has only 19 fund of funds that manage $246 million.

“A lot of our funds are focusing on companies that can surprise on earnings and you are likely to find them in the mid-caps rather than in large caps,” said Jacqueline Aldhous, head of offshore equity analysis at Forsyth.

After more than tripling since May 2003, Indian shares have become pricey, but analysts note the economy has also expanded at more than 7% in each of the past four years. “India has been re-rated massively, but the price earning multiple on the Sensex is still an average 18.5. It is not cheap but is supported by earnings growth,” Aldhous said. “You may not get a market return of 40% but you will get 15% over the next couple of years.”

In previous bull runs, the price-earning multiple was in the high 20s during the dot-com boom in 2000, and nearly 40 in 1994. Aldhous said a strong correction from current levels would see a new class of investors getting into the market. “There is a huge weight of money waiting to come in if there is a correction,” she said. Foreign funds have invested more than $1.2 billion in Indian shares since the start of January, after ploughing in a record $10.7 billion in 2005, according to market regulator Securities and Exchange Board of India.

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