Indian market pegs hope on economic recovery in 2003

Monday, 30 December 2002, 08:00 Hrs
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NEW DELHI: After one of the most lacklustre periods in memory for the Indian stock market, investors are cautiously hoping 2003 will bring a long-term rally in blue-chip equities.

With the Indian economy looking poised for recovery in the coming year, the stock market could end a three-year downturn that has squeezed institutional investors' portfolios and left many average consumers scornful of buying stocks.

While many stock market gurus are waxing optimistic about the future, saying global economic recovery and steady earnings growth will rally the shares on the Indian bourses, others blend the positive outlook with words of caution.

"We have reasons to be positive on the outlook for equities in the year ahead. There will be a recovery in confidence," said Dhirendra Kumar, managing director of Value Research, a capital market research firm.

"Things look very poised for a take off after three consecutive years of depressed trading. Although one shouldn't expect the market to return to the heady days of the 90s, we will definitely see a sustained recovery.

"The trigger for the recovery will mainly be provided by hopes of a strong U.S.-led global recovery by the second quarter of 2003 and pickup in the domestic economic and industrial growth," Kumar told IANS.

According to analysts forecast, the Indian benchmark stock market index will reach somewhere between 3,900 and 5,000 in 2003 up from the 3,300-mark now, with most gains weighted toward the second half of the year.

Investors, of course, are hoping for some relief next year. They've been on a wild ride, mostly downhill, since the boom market went bust in early 2000. This past year was particularly unnerving, given the dramatic price swings.

India's market barometer 30-share Bombay Stock Exchange sensitive index or Sensex closed the week ended Friday at 3,398, registering a moderate gain of 135.67 points or 4.2 percent over its last year's close.

The market index was down a marginal five points on December 27 from its January high of 3,402.90.

In contrast, the index lost a whopping 20.30 percent till the end of December 2001, from its January high of 4,060.02, putting it on pace for what could be the worst showing.

"The market performance in 2002 was better than the preceding year, and I think this will continue in 2003, albeit at a slow pace. My advice to investors would be to just sit there. The markets will rise to higher levels," Kumar said.

But there are strategists who don't see much changing in the market over the next year. They think stocks will swing up and down, and may close out next year almost exactly where they started.

"We may see occasional rally in equities on institutional buying but at the end of the day we will find ourselves exactly at the point from where we started. It's a very likely possibility," said a broker with the Bombay Stock Exchange.

"There is a mindset to automatically expect equities to have a bull run next year. But 2003 may not hold cheers for investors. First, all the expectations of imminent recovery in economy and industrial production next year are unfounded.

"Secondly, the slow pace of economic reforms, prospects of war in the Middle East and uncertainty over a recovery in technology sector will continue to cast a shadow over the market," the broker added.

The broker said hopes for a more sustained upturn would come only towards the end of next year when investors get to see some signs of global economic recovery.

Analysts were, however, unanimous in their view that the momentum of the government's ambitious reforms drive, and more specifically the privatisation of state-run firms, would hold the key for a rally in equities.

Stocks started out this year looking up but the slow pace of economic reforms, communal violence in Gujarat, fears of war between India and Pakistan and a rash of corporate scandals sent prices plunging for the better part of 2002.

"One issue that really swayed the market index for better part of this year more than anything else was privatisation of state-run companies. Privatisation remains the biggest theme in Indian markets over the next year," said Kumar.

The year began on a promising note with the government announcing the privatisation of two blue-chip state-run firms in February in a bid to give a major boost to the gasping economic reforms process in the country.

The investor euphoria over the government's aggressive sell-off drive, however, didn't last for long.

The privatisation drive, projected as the cornerstone of the government's reforms agenda, came repeatedly under attacks from the trade unions and partners of the ruling multi-party coalition.

The government was forced to halt the divestment process of public sector Hindustan Petroleum Corp and Bharat Petroleum Corp in September for three months following intense political squabbling.

Communal violence in Gujarat in February-May took a heavy toll on the market sentiment. Besides, fears of a war breaking out between India and Pakistan also cast a shadow over the market.

The investor sentiment was also dampened by a severe drought that struck much of the vast, largely agricultural country.

The market suffered another blow after rating agency Standard & Poor's downgraded its long-term currency credit rating on India in September, citing a rising debt burden and vulnerable public finances.

The market saw very few new listings in 2002, as most companies preferred to wait for the investor mood to revive.

Hopes of revival of the dormant initial public offering market soared this year after Bharti Tele-Ventures Ltd., a private fixed-line and mobile telecom firm, announced initial share sale of 8.34 billion.

But it failed to excite other companies with the market witnessing very few major listings in the year. Prominent among those who hit the bourse include Punjab National Bank and Canara Bank.

Towards the yearend, the market saw the unveiling of the report a parliamentary panel, appointed to go into the causes of the stock scam that left small investors in a frenzy in 2001.

The panel blamed stockbroker Ketan Parekh and the finance ministry, among others, for the scam.

The committee, in its findings, came down heavily on the capital market watchdog, the Securities and Exchange Board of India, for failing to detect wrongdoings in the market.
Source: IANS
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