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India: Growth triggers in place - Views on News from Equitymaster
 
 
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  • Apr 10, 2003

    India: Growth triggers in place

    Now that the war against Iraq is almost over, investors worldwide seem to have shifted their focus on the future. Investor sentiments are clearly reflected in the market volatility witnessed in the recent past. This is primarily due to the concerns over the growth of major developed economies. Under these circumstances where does Indian stand? Considering that India would not be impacted much by these developments, we feel that the performance of the Indian economy will be dictated more by domestic factors. India seems well placed to take on the challenge of registering a reasonable growth in the years to come.

    For one, on the domestic front, the government has been at the forefront of development in the sense that it has started taking steps by pushing for growth in the infrastructure (roads, railway and ports) and housing sectors. Moreover, with the budget focusing on health, education and employment, this could provide a further fillip to development. The government is also trying to speed up the reforms process in sectors like power and banking. These initiatives will go a long way in attracting FDI in to the country.

    Another important factor is the perception of the international investor community towards India as an emerging market. After a volatile FY02, FIIs have again shown some interest towards India. Though the first half of FY03 showed a declining trend in FII investments, the second half did shown a positive trend. FIIs started to show increasing investments post the month of October when India’s MSCI weightages were increased. The increase in the MSCI weightage is a sign of the increasing confidence of FIIs in the Indian economy.

    On the external front too India is witnessing a revival of sorts. India’s exports saw a 17% rise in the 11 months ending February 2003. This is particularly noteworthy when looked from the perspective that Indian rupee has appreciated by over 2% in the same period against the US dollar. Typically, appreciation in rupee would make Indian exports comparatively expensive. However, in spite of this, India has managed to register a growth in exports, which is commendable. The growth in exports of auto components, steel, gem and jewellery, textile items and pharmaceuticals were the key contributors to the growth in exports. However, it must be noted here, that the Indian rupee depreciated against major currencies like the Euro in the same period, which also was positive for exports.

    India’s forex reserves, which stood at close to US$ 75 billion as at the end of FY03 have also added a touch of comfort. This cushion of huge reserves will help the Indian economy face the consequences of a rise in oil prices by providing a cover for imports. Thus, considering India’s position at this current juncture, it seems that Indian investors will look more towards the domestic economy going forward.

     

     

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