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Thursday, Sep 19, 2019

Merrill Lynch's India chief bullish despite market slide

A 30% fall in Sensex has created a buying opportunity for far-sighted investors, who are likely to lead a market rebound soon.

india Updated: Jun 14, 2006 17:26 IST

A 30 per cent fall in Indian share prices since early May has created a buying opportunity for far-sighted investors, who are likely to lead a market rebound soon, the head of Merrill Lynch's business in the country said on Wednesday.

Hemendra Kothari, chairman of DSP Merrill Lynch, said in an interview that the profit outlook for Indian companies is still positive despite the share price fall, making them attractive investments from a long-term perspective.

"We at Merrill Lynch are very positive on India," he said. "I personally believe this is a temporary phenomenon. We see the signs already that long-term investors are coming in."

Kothari was in Japan as part of a trade delegation of Indian government and business leaders.

India's benchmark BSE share index tumbled 28 per cent from its May 11 peak by the end of trading on Tuesday, wiping out $209 billion in market capitalisation and leaving the market down nearly 4 per cent on the year.

At around 0910 GMT on Wednesday the index was trading down a further 2.6 per cent.

In 2005, in contrast, the BSE index surged 42 per cent as foreign funds pumped in a record $10.7 billion.

Kothari said the share price decline was part of a global trend and profit growth at Indian companies remained healthy, meaning the market slide had made price-earnings multiples more attractive.

"Today multiples are getting reasonable. They are around 14, which is not bad," he said.

"From a long-term point of view the India story hasn't changed. We have fundamentals that are very strong."

India has become Asia's fourth-biggest market for investment banks behind Japan, China and South Korea, with fees last year more than doubling to $381 million.

Kothari said demand for Merrill's services in stock and bond underwriting, merger advice and asset management was strong and would keep growing over the next few years.

More broadly, he said, India's economy would continue expanding as domestic consumption increases. Merrill expects consumption levels to double in five years.

"There is still a lot of scope for growth."

Merrill announced in December that it would pay $500 million to raise its stake in DSP Merrill Lynch to a controlling 90 per cent from 40 per cent.

Kothari, the venture's local co-founder, sold an undisclosed portion of his stake in the deal but has stayed on as chairman.

Other Western banks are also ramping up operations in India, whose economy has been growing at a rate of more than 8 per cent a year.

Goldman Sachs is preparing to launch stand-alone businesses after selling stakes in two Indian joint ventures earlier this year. It also plans to invest $1 billion in India over the next couple of years through its private equity business.

Morgan Stanley operates two ventures in the country while Credit Suisse is relaunching its brokerage arm, dormant since 2001. Australia's Macquarie Bank has started operations and Britain's Barclays Plc has also bulked up in the country.

First Published: Jun 14, 2006 16:16 IST