Booming markets may scale new peak in 2005
Friday, 24 December 2004, 08:00 Hrs
MUMBAI: If 2004 was close to perfect for Indian stock markets with a key index scaling new heights, investors hope 2005 will bring them more cheer on expectations of a robust economic growth and better corporate earnings. Derided for years for its casino-like trading practices and flip-flop regulations, the Indian stock market is likely to strength its position in the coming year as one of the best performing bourses globally, say analysts. From major overseas fund managers to modest salaried investors, everyone hopes to continue making fortunes in the trading ring in 2005 as the Indian market emerges as a preferred investment destination, they add. "The year 2004 will mainly be remembered for the maturing of India's market and its ability to perform despite some mid-term corrections," said Deepak Shah, an equity market analyst with Pranav Securities, a leading brokerage firm here. "The year witnessed it all - a general election, high inflation, and spiralling crude oil prices. Yet, the market remained focussed on the broad fundamentals and continued its march on the growth path," Shah told IANS. "All indicators show that factors like strong economic and corporate sector earnings growth and massive foreign investment inflows would continue to propel the market higher in the year ahead." His optimism also emanates from the fact that overseas investors have started to cast India in a new optimistic light over the past few months. This newfound investor confidence in Indian capital market is unmistakable. The benchmark stock market index scaled to an all time high, much beyond market expectations. Foreign fund inflows scaled a new peak. Domestic retail investors, too, entered the trading ring like never before. India's stock market barometer 30-share Bombay Stock Exchange sensitive index or Sensex is over 10 percent higher as compared to its previous yearend close. The index crossed the 6,400-level for the first time in December. Massive foreign investment inflows in Asia's fourth-largest economy on hopes of sustained higher economic growth and corporate earnings took the benchmark share market index to a level not seen before. If analysts and market trackers are to be believed, the bullish trend on the bourses is set to continue in the days ahead, making India one of the best performing markets globally - a feat it enjoyed in 2003 as well. Foreign funds collectively pumped in over $8 billion in the current year into the Indian capital market, up from $6.5 billion in 2003. A slew of overseas fund managers also started looking at India with renewed interest to make their fortune as the economy started shedding decades of casino-like trading practices in favour of well-regulated systems. Adoption of stringent corporate governance norms by companies, comparable to standards set overseas, and easier investment guidelines also started helping foreign institutional investors to loosen their purse strings in India. In the process, the number of registered foreign institutional investors in the country swelled from 517 at the end of last year to 623, according to the market regulator Securities and Exchange Board of India (SEBI). India's capital market won a major endorsement in the middle of this year when the $170-billion pension fund, California Public Employees' Retirement System, known as CalPERS, decided to enter the local trading ring. The global pension fund major, whose moves are closely watched by other overseas investors for possible leads about the attractiveness of an emerging market, has invested as much as $100 million since its foray in April this year. Even the macro fundamentals favoured the stock markets. The Indian economy is projected to register a growth of 6-6.5 percent during the current fiscal year, despite the impact of an erratic monsoon on the farm sector. Though the projection is lower than the previous year's robust growth rate of 8.2 percent, the general opinion is that India would continue to rank among the fastest growing economies in the world. "The Indian stock market has really come a long way in the last couple of years," said C. Siddarth, an independent equity analyst here. "The rise in the index to a record high within a couple of months of turbulence surely comes as a major boost to the sentiment of investors, who were hit rather hard in the volatile trade. The recovery shows the strength of the Indian market." The shock defeat of the National Democratic Alliance in the April-May national elections and the delay in the installation of a new government led the Sensex to dip to an eight-month low on May 17. The sentiments continued to remain dull as the prospect of a Congress party-led coalition with the support of Left parties - perceived to be opposed to economic reforms programme - did not excite the market. The little optimism on the economic growth was also weakened as the monsoons played truant in several parts of the country during the crucial June-July period in several parts of the country. "But the markets bounced back as much hope was seen in the economy's governance as the pro-reform team of Prime Minister Manmohan Singh, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Finance Minister P. Chidambaram was firmly in saddle," said Siddarth. "With the finance minister likely to announce some major tax and reforms in the next budget and expectations of a further opening up of the Indian economy, 2005 also holds much promise for the markets."