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India amidst global concerns

May 22, 2003

The Indian bourses are currently mirroring a divergent trend as compared to the global indices. Indian indices have traded strong in the month so far with the Sensex gaining 3% in the current month. The situation is akin to other Asian indices like Hong Kong (2.9%) and China (up marginally). Compare this with some global indices and the relative picture gets clearer. The American indices, Dow and US are down almost 1% each in the current month, while Germany has lost over 5%.

 May 2, 2003May 21, 2003Change (%)
Sensex 2,967 3,057 3.0%
HongKong 8,808 9,060 2.9%
China* 1,532 1,533 0.1%
Nasdaq 1,503 1,490 -0.9%
Dow 8,583 8,516 -0.8%
Germany 2,986 2,827 -5.3%
* China closing as on May 12, 2003.
Note: May 1, 2003 was a holiday on account of International Labour Day

The above numbers go on to prove the resilience Asian markets have been showing time and again, particularly India. This is inspite the fact that many Asian countries (excluding India) have been plagued by the SARS effect. But the fact remains that Asia is where the growth is, currently. India being one of the bigger economies of this subcontinent is likely to contribute to the fuelling of Asian economic growth. With GDP growth targets of nearly 6% in the current fiscal (government has targeted a growth rate of 8% by 2007), India is one of the fastest growing economies in the world.

On the other hand, concerns over the possibility of the US showing de-growth, which could also lead to deflation, has been gaining ground globally. Not only the US (world's largest economy), but also Germany (world's third largest economy) is expected to witness deflationary pressures. Japan (world's second largest economy) is already in doldrums. Though there have been debating views about the US going into deflation, the recent statement by the Fed, that the odds of an "unwelcome substantial" slowdown in inflation were now stronger than that of a rebound, have further hiked concerns of a global economies taking a hit.

However, amidst all the uncertainties regarding global economic slowdown, Asian markets have been holding fort. India, in particular, presents a strong case for investment, as it has been able to prove its mettle to the global community. Be it the low cost of production for manufacturing companies (steel/aluminium), or the efficiencies and intellect displayed by the services sector (software), India is well poised to be the outsourcing hub for many global industries (software/auto). Moreover, the growth witnessed in the manufacturing sector, despite the poor monsoons last year, is a good indication of the fact that India Inc. is fighting hard to overcome its dependence on rain Gods.

Though the short-term uncertainties continue to remain, this is an opportunity for investors to build a long-term equity portfolio. Hence investors, who see the current valuations as an opportunity, should keep an eye on the long-term attractiveness of Indian equities. This is a time to pick and choose.


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