After losing steam in the spring India is back on top. Since mid April the market has seen a sharp surge. The main stock market index, the Sensex 30, broke through the 7,000 mark for the first time ever in late June after a seven-month public feud threatening one of its major constituents, Reliance Industries was resolved. The battling brothers Mukesh and Anil Ambani agreed to divide up their late father’s conglomerate between them (after some stern intervention from their mother). Reliance, whose diverse interests include energy, textiles and telephony, saw 2004-5 revenues of $16.7bn and represents some 3.5% of India’s GDP. Its exports account for over 6% of India’s total and its market cap makes up 12% of the Sensex.
Last week the index moved even higher to touch fresh record highs above 7,300, as investors took heart from strong domestic demand numbers, soaring levels of foreign investment, good results from leading software services firm Tata Consultancy Services and the first state visit by an Indian PM to Washington in five years; the Congress party’s Manmohan Singh was greeted warmly by George Bush, who hailed India as an “emerging economic power”.
The strength of India’s economic and stockmarket performance has its roots in the outsourcing phenomenon, says Fortune. The growth of higher-income white-collar jobs is creating a vibrant middle-class – and because India is young and educated (half the population is under 25) demand for services such as banking, telecoms and cars should grow dramatically in the next two decades. Building on that growth story, the country’s stocks “have been supported by an avalanche of cash from retail investors worldwide” said The International Herald Tribune. In particular, Japan has caught the India bug, and “India funds are flying off the shelves”.
A word of caution before you follow, said The Business Times of Singapore. The long term outlook for India is great but on a p/e ratio of 15 it is not cheap anymore and there are some signs things are overheating with so many new India funds being launched, The Sensex could top 8,000 this year, but don’t bank on it