Upbeat stock investors bet on growth story in 2004

Tuesday, 23 December 2003, 08:00 Hrs
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NEW DELHI: The rapid strides taken in 2003 by the Indian economy, long derided for its inward looking policies and slow moving bureaucracy, are likely to reverberate through the global markets for quite some time to come.

But if the year earns a place in the financial history books, it will mainly be for the country's arrival at the top level of best performing stock markets in Asia after years of dormant trading.

From major overseas fund investors to modest salaried folks at home, everyone is looking to make his fortune in the trading ring as the Indian market sheds its casino-like trading practices and emerges as a preferred investment destination.

Evidence of the newfound investor confidence in Indian stock markets is unmistakable.

The benchmark stock market index is trading at a near four-year high, foreign fund inflows are at a record level and domestic retail investors are entering the market like never before.

Looking ahead, analysts expect the market bull, which has shown little signs of losing its breath in the last few months, to charge ahead with renewed vigour in 2004 on the back of strong fundamental indicators.

"Investors are probably a lot happier towards the end of the current year than they were, say, a year ago," said Neeraj Deewan, a senior analyst with the New Delhi-based Quantum Securities.

"Today, an investor, whether domestic or overseas, is more optimistic than ever before. Over the past few months, overseas investors have started to cast India in a newly optimistic light," Deewan told IANS.

"I think this sense of optimism will only gain strength in 2004 on indications that India's economy is finally set to enter a higher trajectory of growth after growing at a tepid pace in the past so many years."

The Indian government as well as leading think tanks have projected a seven percent growth in the current fiscal year.

The seven percent economic growth figure will be the strongest full-year expansion in the last six years. The last time India's economy grew over seven percent was in 1996-97, when it touched 7.8 percent.

India's economy grew by a moderate 4.3 percent in the fiscal year ending March 31, 2003, mainly due to a 3.1 percent fall in agriculture production, as the worst drought in three decades ravaged large parts of the country.

A sharp rebound in the economy is likely to further boost the sentiment of foreign institutional investors (FIIs), who act as the backbone for India's liquidity starved capital market.

About $6 billion of net foreign fund buying, the highest since foreign portfolio investment was allowed into India a decade ago, has powered a near 57 percent rise in Indian shares this year.

Overseas investment in Indian stock markets fell to the lowest in a decade in 2002 as the slow pace of the government's economic reforms programme spurred foreign investors to seek gains in other emerging markets.

Indian stocks had remained dormant since the dotcom bust around three years ago till early 2003. 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.

Overseas investments grew sharply in 2003 on hopes of a higher economic growth in the year ending March 31, 2004, boosted by improved agriculture production and industrial activity.

Analysts warn that some dark clouds are lurking on the horizon and the probable bull market may hit bumpy roads in the year ahead if the Indian government fails to push through with crucial reforms before the general election next year.

"The first possible roadblock in the market rally could be the annual budget. If the budget is very populist in view of the elections, it will dampen the investor sentiment," said Dhirendra Kumar of Value Research, a capital market research firm.

"My worry is crucial reforms issues such as privatisation of state-run firms, reduction in food subsidies and changes in archaic labour laws may find little consideration in the budget due to the poll fever," he added.

The general election next year also adds an element of political uncertainty to the economic outlook, adversely affecting the market sentiment, said Kumar.

The market opened the year 2003 on a shaky note as talks about the possibility of a US-led war on Iraq gained ground. The war talk had badly wrecked investor sentiment in markets across the globe long before it actually started.

Although the war in Iraq drew to a close sooner than expected, a fast-spreading acute pneumonia that had hit many countries, mostly in Asia, came at a bad time for the already jittery Indian market.

The deadly SARS sapped investor confidence and hurt domestic economic recovery prospects. Although India largely remained untouched by it, the virus dealt a blow to industry as firms cancelled business trips, conferences and product launches.

The market, however, got a major boost after Finance Minister Jaswant Singh unveiled a slew of "stock market friendly" measures, including abolition of tax on dividend incomes, in his annual budget for 2003-04.

The budget announced the tax on dividends distributed by corporate houses in the hands of the recipients would be removed from April 1.

Shares of export-oriented technology companies came under selling pressure in the middle of the year following rapid rise in the value of the Indian rupees against the US dollar.

The rupee gained over five percent against the dollar in 2003, badly affecting Indian software exports.

The market received a major boost after good monsoon rains in most parts of the country.

Buying activity in old economy counters witnessed a sharp increase following good monsoon rains, which spur demand for consumer and other industrial products all across the country.

The Indian stock market benchmark 30-share Bombay Stock Exchange sensitive index or Sensex crossed the 5,000-mark, a level not seen in three-and-a-half years, in early November. The index at the opening of the year was 3,390, a net gain nearly 60 percent.

The crossing of the crucial 5,000-mark came as a major boost for investors who had badly burnt their fingers in the last few years' dormant domestic stock market.

A slew of initiatives taken by the governments of India and Pakistan to ease strained ties between the two nuclear-capable rivals also boosted the market sentiment.

Source: IANS
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