Indian stockmarkets confounded expecta¬tions in their response to the train bombings of July 11: the Mumbai Stock Exchange’s benchmark Sensex index gained 3% as investors focused on Infosys Technologies’ strong earnings. But that was a rare show of strength. India has been one of the worst performers since the global markets shakeout in early May, with concerns over the impact of oil on economic growth and the weakening rupee keeping stocks depressed. The deferring of peace talks with Pakistan in the wake of the bombings has added to uncertainty.
Despite these worries, there are plenty of positives in the Indian economy, which is sprinting ahead at a rate that leaves the old economies of Europe looking flat-footed. Growth exceeded 8% in 2004 and 2005 and the IMF predicts only a modest cooling, to 7.3% this year and 7% in 2007. With annual exports having crossed $100bn, “we can seriously talk of a figure of over $150bn in the next couple of years”, says Madan Sabnavis of the Business Standard. The country’s reliance on the US, Japan and the EU as its main export markets has lessened, offset by increased demand from the Emirates, China and Singapore – all tipped as the regions of fastest growth over the next decade.
In the short term, the market looks fragile. The Sensex’s forward p/e is at 15.6 times versus 11 to 14 times for Asian peers, says Deepak Lalwani of Astaire Research. Global conditions “do not provide support for equities, especially emerging markets”. But India remains “one of the best long-term investment opportunities on the globe”, as Eoin Treacy says on Fullermoney.com.
by Graham Buck
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