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HSBC Favours Industrials...

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The Indian fund unit of HSBC is overweight on industrials and is raising exposure to metals because of signs of an economic revival and hopes for higher government spending to boost growth, a fund manager said.

"We are overall positive on the infrastructure sector given that we expect the new government to focus on economic reforms," Jitendra Sriram, who took over as head of equity in February at HSBC Asset Management (India), said.

Prime Minister Manmohan Singh's ruling coalition was re-elected in May with a stronger mandate, raising hopes it would further open up the economy to foreign investment and remove bottlenecks to help rebuild crumbling roads, ports and bridges.

Expectations are high the annual budget on July 6 will spell out the plans and set the ball rolling for asset sales in state companies such energy equipment leader Bharat Heavy Electricals Ltd and telecoms Bharat Sanchar Nigam Ltd.

"Although economic benefits from most of them may come over a period of time, their announcement could play a major role in altering risk appetite and valuation over the medium to long term," said Sriram, who manages about $725 million.

HSBC is, however, wary of utilities as they have run up too high, he said in an e-mail to Reuters questions. The firm cut stakes in state-run utility Power Grid Corp of India, but raised exposure to industrials such as equipment makers Crompton Greaves and Thermax in May, data from fund tracker ICRA Online showed.

"We have increased exposure on account of marginal pick-up in economic activity and expectations of increased infrastructure spending by the new government," he said in an e-mail interview.

Expectations for reforms have triggered a sharp rally in shares with capital goods stocks surging nearly 50 per cent since mid-May, more than twice as fast as India's benchmark index.

India's factory output rose by 1.4 per cent in April from a year earlier, after declining three times in the previous four months, raising hopes for a gradual recovery.

"Also, improved capital availability could boost the capex cycle for the infrastructure sector," said Sriram, who also holds shares in engineering firms Bharat Heavy Electrical and Larsen & Toubro.

The World Bank said on Monday India was likely to expand at 8 per cent in 2010, the fastest among major economies in the world, and 8.5 per cent the year after, matching China's growth rate.