DIWALI ON DALAL STREET
Monday, 12th November, 2007
DIWALI ON DALAL STREET
It took 15 years for Sensex to sail from 1000 pts to 10,000. The next jump, to 20,024 pts, took just 20 months. This makes the India growth story so unique. The hope of another foreign exchange surge into India - forex reserves across emerging markets are expected to hit a record $1 trillion in 2007 - powered the Sensex to a historic figure of 20,024.
Domestic and foreign investors scooped up Indian equities as the Sensex made its third-largest intra-day gain ever, 781 points, in advance of an anticipated US Federal Reserve interest cut on October 31. The Sensex has gained 27.5 per cent since the last Fed rate cut on September 18 and the climb from 19,000 to 20,000 took only 11 trading sessions over 14 days.
Why are you looking at that particular number? It was a foregone conclusion that flows waiting would come. Emerging markets like India have become hot investment destinations because of a weakening US dollar and economy, said observers. Countries that traditionally invest forex reserves in US bonds now divert some money into the world’s growing economies.
That growth story is the bedrock of the stock surge. India’s economy is likely to grow at close to 9 per cent, said Finance Minister P. Chidambaram at the Indo-US CEO forum in Mumbai. This is lower than last year’s growth rate of 9.4 per cent. But with the world’s largest economy, the US, expected to post a GDP growth of below 2 per cent this year, analysts said there is a 30 per cent chance of an American recession in 2008.
China is the world’s fastest growing economy with an 11% growth rate, India is second, but since its growth is largely driven by domestic demand, it is may be more insulated from a recession than China and Asia’s other ‘Tiger’ economies riding on exports to’ the US, experts said.
It took 15 years for the Sensex to sail from 1,000 points to 10,000, as India opened up its economy from 1990 to 2006. With Indian companies outperforming the overall economy, the Sensex made its next 10,000-pointjump to 20,000 in just 20 months.
Experts advise caution: Global crude prices are rising, export-led industries are struggling with a strong rupee and curbs on forex inflows measures are possible. On pricing, whether valuations are stretched and gone beyond the fundamentals is an issue we must look at.
Prime Minister Manmohan Singh urged global investors to remain engaged and committed in India, adding that the stock markets were sending positive signals.
“Be it FDI, investments in our stock markets or investments in knowledge economy, the signals are all positive. We will work to keep these positive,” Singh said, inaugurating the Fortune Global Forum in New Delhi, attended by leading bankers and CEOs.
Prime Minister Manmohan Singh said, “I know very well that investment is an act of faith. It is shaped by perceptions, by expectations and by all uncertainties of life. I invite you to have faith in India. I assure you that your faith will not be misplaced,” he said. .
“All those who invest in India, who invest in its future, who invest in India’s prosperity and who invest in the capability of the Indian people will be investing in the future of democracy,” the PM said, asserting that no policy reform has ever been reversed in India.
