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Indian markets: Laggard?

May 9, 2003

‘The fizz has gone out of equity markets globally’. This is the lament that one hears in the market circles as well reads in newspapers. The impression that conjures up in the mind is that global investors are rather directionless and the fear of major world economies slowing down is taking its toll on domestic investor sentiment. However, looking at the stock market performances of some major economies, Indian investors would definitely want to improve their view towards ‘other’ markets. This is because Indian bourses have been out of favour since the beginning of 2003, whereas the scenario is ‘better’ for other markets.

 2002GDP2003*GDP (E)
BSE Sensex (India)3.5%5.0-11.7%5.7
Nasdaq (US)-31.5%2.212.8%2.6
Dow (US)-16.8%2.22.6%2.6
FTSE (UK)-24.5%1.71.3%2.4
SSEC (China)-17.5%7.512.1%7.2
Hangseng (Hong Kong)-18.2%6.3-4.5%5.9
STI (Singapore)-17.4%3.6-2.5%4.2
* All index closings as on May 7, 2003
Note: China index close as on April 30, 2003
GDP Source: CMIE

As can be seen in the table above, India was the only market in 2002 that managed to keep its head up in the positive territory despite all odds on the global front. BSE Sensex closed the year with gains of 3.5% as compared to substantial losses in major world indices. Countries with high GDP growth like China and Hong Kong were also out of favour. However, surprisingly, this trend seems to have taken a U-turn since the start of 2003, as Indian stock markets have been amongst the key losers, inspite of strong GDP growth forecasts. On the other hand, for China, SARS has not been able to play a spoilsport for investments in its capital markets. The country continues to grow at a rapid growth rate of over 7%. Even US markets have managed to renew investor interest.

One of the key reasons for the US markets to gain could be the end of war with Iraq. It must be noted that prior to the announcement of the start of war on Iraq, uncertainties like the duration of war and the cost of war to major economies like the US and UK led their markets to lower levels. The gains that have been witnessed in these indices have primarily been built up since mid-March just before the start of war. Another reason for the gains on US markets could be the fact that the worst of economic and consumer data had already been factored into the markets in early 2003. Positive earnings growth declared by major companies and data supporting the fact of US economy heading for a recovery fuelled investor confidence further.

However, on the domestic front, the picture is totally opposite. Though the long-term outlook for Indian markets remains positive and intact, at the current juncture, markets are witnessing weakness on account of concerns, which are more short-term in nature. The government’s inability to effectively carry out the reforms process, including divestment, has been hurting domestic and international investor sentiments. Moreover, India’s dependence on monsoons for a sustained economic recovery also plays a major role in attracting investors. However, to conclude, it is primarily the sentiments that are against investments in Indian equities. On the growth triggers front, not only have the Indian exports been ruling strong, but also the monsoons are likely to be near normal in the current fiscal. Valuations are already at historic lows and it is only a matter of time that with a near 6% GDP growth in the next few years, investments and sentiment in India will improve.

In effect, though Indian indices have been laggards till date, it is quite likely that in the final analysis of 2003, they again will rule the roost.

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