U.S. Broker Plans India Family Office Despite Valuation Woes

(Bloomberg) -- Valuations near a seven-year high and sagging economic growth are taking the shine off Indian equities. To William O'Neil & Co., the $2 trillion stock market is still the place to be.

O'Neil Capital Management, the family office of U.S.-based investment and advisory firm, plans to set up shop in India by January to invest in local stocks, according to President Steven Birch.

“If I were a foreign portfolio investor with a growth mandate, I'd certainly be working here,” he said in a phone interview. “I'm not worried about valuations and I don't think they are too stretched.”

The economic slowdown, amplified by the after-effects of the cash ban and the chaotic roll out of the new sales tax, has coincided with risk-off stance across Asia. Foreigners pulled $3 billion from Indian stocks in the September quarter, the biggest three-month outflow this year. The S&P BSE Sensex still trades at a one-year forward price-earnings ratio of 20.3, near the highest since 2010.

The gauge rose 0.6 percent at 10:08 a.m. on Friday, and remains on course for its first weekly advance in three weeks.

“We see a good number, a few dozen really good growth stories over here that are worthy of investment,” Birch said. “Great growth stocks carry high multiples for a reason.”

Growth in company earnings, which has repeatedly lagged behind optimistic projections by analysts and kept valuations elevated, will recover as the impact of the cash ban and the new tax wanes, he said. The firm remains “positive” on non-banking finance companies, auto-parts makers, private banks and infrastructure stocks.

Asia's third-largest economy will expand 6.8 percent in the year through March, the slowest pace in four years, according to the median estimate in a Bloomberg survey published late last month. The forecast was cut from 7.3 percent predicted in August after the uncertainty stemming from the two sweeping policy changes hurt businesses.

“We have to let the dust settle on some of these outstanding macro issues like the goods and services tax,” Birch said.

The company, which is in the process of getting its foreign portfolio investor permit, plans to start a hedge fund or manage money for wealthy investors, he said. It currently provides equity research through a mobile application called MarketSmith India.

--With assistance from Srinivasan Sivabalan

To contact the reporter on this story: Nupur Acharya in Mumbai at nacharya7@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Ravil Shirodkar