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The flight of the Indian
market
By Raju Bist
MUMBAI -
Stock markets in India have generally been the purveyors
of bad tidings: financial losses, corporate frauds, even
suicides by brokers. But over the last few months, the
benchmark Sensex (Sensitivity Index), hosted by the
Bombay Stock Exchange (BSE), the country's oldest and
largest bourse, has been a cause of celebration among
brokers and investors alike.
Nearly two years
ago, in April 2002, the Sensex hovered at around the
3,300 mark. It then began a gradual slide, touching
3,181 and 3,070 in August 2002 and December 2002,
respectively, before bottoming out at 2,959 in April
2003. A few market pundits warned that this signaled a
long bear phase, attributing it to Indo-Pakistan
tensions over Kashmir and uncertainty over the results
of the general elections scheduled for later this year.
But the bulls took over and, since then, have
pushed stock prices up with a vengeance. The Sensex
touched 3,607 points in June 2003, 4,453 in September
2003, 5,838 in December 2003, and on the afternoon of
January 9, it closed at 6,112 points.
In the
process, it shattered a number of records. Last year,
the Sensex broke an 18-year benchmark by closing 59
percent higher than the total trading days in a calendar
year. Over 18 continuous trading days - between August
12, 2003, and September 5, 2003, - the Sensex equaled
its earlier record of successive higher openings set in
February 2000. The Sensex had opened higher for 18
straight trading sessions between February 17 and March
3, 2000. Market sources said higher openings this time
around were a sign of the inherent bullishness of the
market.
On November 5, 2003, the Sensex set a
new 52-week high of 5,068. Another record was cleared
when, on December 20, the market capitalization at the
BSE zoomed to a record Rs 12.25 trillion (US$269.6
billion). In the process, it improved on an earlier high
of Rs 12.18 trillion set on February 21, 2000. Also,
between April (when the bull run began) and December
2003, the number of companies with a market
capitalization of over US$1 billion increased from 27 to
48. Finally, on January 2, 2003, the Sensex finished at
a record closing high of 6,026.59 points, erasing the
previous all-time closing high of 5,933.56 points hit on
February 11, 2000.
So what is driving this bull
frenzy? Experts cite a number of reasons:
Good economic indicators: a low-interest
regime is leading to increased financing of consumer
durables and housing loans and there has been successful
disinvestment of some government companies. Exports are
booming, foreign exchange reserves are growing at $2
billion per week and the rupee is appreciating steadily.
One of the world’s fastest growing economies, India also
was the second best-performing Asian market in 2003.
Companies' reporting excellent results: the
corporate sector has shown strong growth consistently
for the last four quarters, which has been manifested
atop restructuring operations carried over the past two
to three years. Over 250 companies registered higher
profits in the six months ending September 2003 than in
the whole of 2002-03.
Progress of the Golden Quadrilateral: an
ambitious highway project, launched with Prime Minister
Atal Bihari Vajpayee's blessings, to connect the four
corners of the country. [India's grand highways going nowhere
fast Sep 18] is finally taking off, leading
to increased demand in the steel and cement sectors.
Wider participation from economic sectors: in
1999-2000, the technology boom had led to a bull run.
This time around, there has been wide participation from
a wide variety of sectors.
But the biggest
contributors to the bull run are foreign investors who
are on a buying spree. Last year, Foreign Institutional
Investors (FIIs) bought shares worth an estimated Rs 310
billion. This was the highest-ever investment made by
them in a single calendar year since their foray into
the Indian markets a decade ago.
A wider,
macro-economic perspective reveals why the FIIs are
showing such a keen interest in the market here. India
today is an investment growth destination (with the
highest expected GDP growth rate, after China’s 8
percent) with attractive company valuations. According
to consulting and research firms, driven by China and
India, Asia is expected to emerge as the key driver of
the global economy in the next eight to 10 years. As a
result, the attractive valuations these markets provide
today are reason enough for a sustainable, long-term
bull run.
Key market players are quick in
welcoming the sustained surge. M Damodaran, chairman and
managing director (CMD) of the Unit Trust of India, the
country’s largest mutual fund, called it a "broad-based
rally", before adding, "Finally, the market is factoring
in the fundamentals of the better companies." CMD Nimesh
Kampani of JM Morgan Stanley said he was pleased to see
the market crossing the 6,000 mark and expected it to
grow further with sustained investments from the FIIs.
"This is the beginning of the longest and most
secular bull run in the history of the Indian stock
market," according to Rakesh Jhunjhunwala, who has large
equity holdings in several companies and is reportedly
the biggest individual taxpayer in Mumbai.
As
was expected, the soaring Sensex and daily reports of
fortunes being made on the exchanges have started luring
the small, retail investors back to the markets. One
indication: the rise of many shady penny stocks, many of
which have shot up by 100 percent in value. Lacking the
deep pockets to invest in big stocks, small investors
are also entering speculatively in low-priced counters.
There are a few who caution the small investor.
"The market is moving too fast in one direction all the
way. A word of caution is advised for the retail
investor. They should be extremely selective or go
through the quality mutual fund route," says Prakash
Khemani, managing director of Bafna Securities Ltd. Adds
Sunayna Patil, partner at Keshavdas Thankker & Sons,
"The markets have indeed had a dream run post April 2003
and there is no doubt that there will be a further run
upwards from here, barring a few hiccups. However, in
the short term, it is advisable to take a cautious
stance, as hefty corrections may occur due to profit
booking."
The final word comes from G N Bajpai,
chairman of India’s stock market regulatory body, the
Securities & Exchange Board of India. Addressing a
select group of journalists recently he said, "Only
smart, informed investors with analytical abilities
should go to the market directly. The others should go
through professional asset managers."
But with
the Sensex flying so high, one question remains: how
many small investors are willing to listen to him?
(Copyright 2004 Asia Times Online Ltd. All
rights reserved. Please contact content@atimes.com for
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