Sensex rise has India's investors fluttering
By Raja M
Lengthy red firecracker chains usually herald celebrations on Dalal Street in
South Mumbai's crowded business district of the Fort area, but news on October
3 was more explosive when the Bombay Stock Exchange (BSE) Sensitive Index, or
Sensex, rocketed to near 18,000 points for the first time ever, up from 16,000
points in a record two weeks.
On September 26 the Sensex had zoomed past the 17,000-mark, a week after
crossing the 16,000 points in five trading sessions, the quickest climb in the
132-year history of the BSE, Asia's
oldest stock exchange.
India's Finance Minister Palaniappan Chidambaram cautioned retail investors,
who usually follow the herd in such situations and suffer most, while the
market responded with a mixture of short-term worry and long-term exhilaration,
confidence and optimism.
"The sudden rise was dangerous," Nimesh Shah, director of the Mumbai-based
brokerage VFC Securities, told Asia Times Online. "There are bound to be sharp
corrections. We continue to be bullish, and the Sensex might hit even 19,000
points by December, but for now we advise investors to wait and watch."
Sharp corrections moved in by October 8, following consolidation as well as
increasing political uncertainty about how long the current government would
last. The Sensex dropped 282 points, with selling of metal, oil and realty firm
stocks, heavy gainers the past fortnight. The wide-based National Stock
Exchange's Nifty went down by 100.75 points to touch 5,085.10.
Foreign investors fed the autumn bull run with a total of US$5 billion of
stocks traded in 10 sessions after the US Federal Reserve cut interest rates on
September 18. India's National Stock Exchange says foreign investors pumped
$669 million into Indian stock markets on October 3 alone.
With September also producing $2.7 billion, the regulatory Reserve Bank of
India was left nursing a headache of foreign exchange reserve riches nearing
$300 billion, with the rupee climbing to a nine-year high against the US
dollar. The rupee then weakened slightly to end at Rs 39.45 to the US dollar on
October 8.
Exporters were also left reeling with the forex fund flood and the stronger
rupee, and the commerce ministry hurriedly announced more tax sops to add to
the $345 million relief package announced earlier this July.
India's exports for the fiscal year are expected to reach only $140 billion,
compared to the $160 billion target the government insisted India would
achieve.
For the 21-year-old Sensex that took 10 years to climb from 1,000 points in
1990 to touch 6,000 points on February 11, 2000, a 2,000-point increase in two
weeks was unprecedented, and warning bells tolled.
"The external as well as the domestic factors that favored Indian stock markets
may not endure for long," South India's leading English daily, The Hindu,
observed in a rare lead editorial on the stock market. "The US subprime crisis
might become worse and lead to a recession."
Indian investors have seen dreams turn nightmares often enough, with over five
major stock market crashes since the 1990s, starting with the "Big Bull"
Harshad Mehta scam in 1992 that destroyed investor confidence for half a
decade.
A more recent crash in March 2001 involving stockbroker Ketan Parekh wiped out
an estimated US$32 billion of investor wealth in a month.
Not everyone was astonished or nervous about the Sensex's sudden take-off. "We
were expecting it," Neera Jain, an analyst with the New Delhi-based stock
market consultants CRN India, told Asia Times Online. "We are still very
bullish about the Indian market, and the market growth is based on sound
technicals. There is nothing to worry in the near future."
Conspiracy theories added to discomfort, with the Economic Times of India
reporting a market rumor that the Sensex jump was courtesy of market
manipulation by a few powerful industry houses to raise funds for favored
political parties, as mid-term elections loom.
The stock market rocket has churned a new global club of corporate behemoths
from South Asia. The biggest gainer was the New Delhi-based DLF, India's
largest real estate company. DLF had an initial public offering this July of
$2.3 billion, a record. Now DLF has market value of over $37 billion.
Recent financial history shows foreign investor fickleness in emerging markets,
depending on the American economy. Yet, whether the US Federal Reserve changes
interest rates or India's electorate changes government, India's economy has a
momentum that will be difficult to brake.
"Our non-resident Indian investors are very happy with the market situation,"
says Nimesh Shah of VFC Securities, and the happiness looks likely to continue,
with a few corrective bumps, of course.
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