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Funds confident privatisation will continue

Fund managers in India are confident a spat within the government over privatisation will not derail asset sales, the main driver for the stock market.

State-run firms have been the biggest gainers in the Indian market in 2002, which was rattled by war fears and drought earlier this year.

Domestic and foreign investors have shovelled money into government companies, driven by hopes privatisation would improve efficiencies, bring greater accountability and improve profitability of these companies.

Divestment Minister Arun Shourie, a former World Bank economist and newspaper editor, said on Thursday that strong opposition within the ruling coalition posed a threat to the programme.

But the market is still confident. The Bombay Stock Exchange's index for state-controlled companies is up 75 per cent on its end-2001 level and has shown little sign in recent weeks of giving up those gains.

In contrast to that massive rise, the blue-chip index has lost almost three per cent in the period.

"Privatisation is never going to be a smooth, one-way sail," said Anand Radhakrishnan, a Madras-based portfolio manager with Sundaram Mutual Fund.

"Political bargaining is inevitable but it cannot hijack the privatisation process," he said.

Turf war

After several false starts privatisation took off early in 2002, as the government sold strategic stakes in petroleum retailer IBP Co Ltd, leading Indian overseas telecommunication firm Videsh Sanchar Nigam Ltd and Indian Petrochemicals Corp Ltd.

The government also ceded management control in the nation's top carmaker Maruti Udyog Ltd.

Foreign funds pumped in $600 million into Indian shares, mainly in state-run firms, in the first quarter of calendar 2002.

The flows have since dwindled and sales have run into rough weather, because politicians are loath to surrender control of companies, especially those that make good profits.

The government aims to raise Rs 120 billion from asset sales in the current year to March, and has managed Rs 50 billion so far.

The opposition to sell-offs could delay much-awaited share disposals in two prized refiners, Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp Ltd, which together hold 40 per cent of the $15 billion domestic oil market.

Hindustan Petroleum shares have leapt 95 per cent in 2002 to 272 rupees while Bharat Petroleum is up 40 per cent at Rs 263.85. The two stocks are among the top five holdings of most mutual funds in India.

Fund managers are bracing for the long haul.

"There may be roadblocks, but privatisation will go through," said Ved Prakash Chaturvedi, CEO of Tata TD Waterhouse AMC.

"In the long run macroeconomic benefits will force the government to push ahead with divestments," said Darius Pandole, managing director AMP IndAsia India Fund, a private equity money manager with about $55 million under management.

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