NEW DELHI: Investors are growing more enthusiastic about shares every day -- highlighted this week by sharply higher fund inflows in the market that propelled the benchmark market index to a 26-month high on Wednesday. The total market capitalisation, which is the total value of all the shares traded in the market, jumped from 5,460 billion on April 1 this year to 7,130 billion on July 24. The seemingly never-ending rally on the bourses has already helped the key share market index to register a gain of nearly 12 percent since the beginning of the current calendar year. India's stock market barometer 30-share Bombay Stock Exchange sensitive index or Sensex has also gained nearly 30 percent since it touched a six-month low on April 25. "The magic is back in the markets, finally," says Dhirendra Kumar, managing director of New Delhi-based Value Research, a mutual funds and capital market research firm. "The consensus in the trading ring is that while there will certainly be bouts of profit booking in the days ahead, this is a rally that is for real and its momentum is still building," Kumar told IANS. Indian stocks had remained dormant since the dotcom bust around three years ago. A flood of accusations of shady dealing and stock price manipulation had also kept the investors away from the market. A slowing economic growth, gloomy industrial performance, and uncertain geopolitical situation inflicted more pains on bruised investors. "There are many valid reasons for the rally and the most important reason is that the market has not faced any major negative news since the end of the Iraq war," said Vijay Bhushan, a partner in brokerage firm Bharat Bhushan and Companies Ltd. "On the positive side, there are many factors that have boosted the sentiment of not only domestic investors but also foreign institutional investors who had lately adopted an indifferent approach towards Indian market." The positive factors, according to analysts, include sharp increase in foreign fund inflows in the market, a smart pick up in industrial growth, and a downward trend in the overall interest rate regime. "The lowering of interest rates on all major saving schemes is forcing small investors to look at the stock markets. This has resulted in a sharp jump in liquidity in the market," said Kumar of Value Research. The prospects of sharply higher economic growth in the current fiscal year boosted by normal monsoon rains has also enthused share investors, he added. The agriculture sector, which depends heavily on the monsoon rains, accounts for a quarter of the country's total output and employs more than two-thirds of its billion-plus people. Metrological department officials say the June-September monsoon is expected to be close to normal this year after below normal rains last year, when the country faced the worst drought in three decades. Buoyed by normal rainfall, economic think tanks have started revising projections for economic growth in the current fiscal year to six and 6.5 percent, up from previous forecasts of between five and 5.5 percent. Normal monsoon in India results in improved financial performance of stock market heavyweights such as Hindustan Lever, Hero Honda Motors and Associated Cement Companies, who generate a major portion of their income from rural areas. A surge in investments by foreign funds, which act as the backbone for India's liquidity starved capital market, has also helped the rally in the market. Foreign institutional investors have pumped more than $2 billion into Indian stocks and bonds so far in 2003 compared to about $555 million in the whole of 2002. This is the fourth time in almost one decade since India opened up to foreign investors that net foreign fund inflows have crossed the $2 billion mark. "This year may see record foreign fund investments in the Indian market," said Neeraj Deewan, a senior analyst with New Delhi-based brokerage firm Quantum Securities. "Many new foreign institutional investors are coming to the market as trading in major Asian market continue to be lacklustre. They are buying shares across the board to cash in on rise in return on equity." And in the short-term, analysts say the only way is up. Traders see the market index crossing the magical 4,500-level, seen only during the technology driven boom in late 90s, by November.
Source: IANS