• NOVEMBER 28, 2003

US gloom, India booms!

The markets are once again near the magic 5,000 levels. That's over 60% gains for both the benchmark indices viz. Sensex and Nifty since April this year. What's more, Indian indices are among the top gainers when compared to the US, European and even the Asian counterparts.

A look at the table below reveals provides an interesting insight to how the global markets have performed since the start of 2003 till date. Surprise, surprise, except for China, all other major indices across continents have clocked double digit gains during this period.

ExchangeJan 1 2003Apr 1 2003Nov. 27% gains since Jan 1% gains since April 1
Asian Tigers
Hang Seng9,3218,63412,07629.6%39.9%
Karachi 1002,7012,7164,06850.6%49.8%
Nikkie 2258,5797,97310,14518.3%27.2%
Singapore (Straits Time)1,3411,2681,69626.5%33.8%
US markets
Germany (Dax)2,8932,4243,73829.2%54.2%
Russia (Moscow Times)4,3544,3656,39446.8%46.5%
UK (FTSE 100)3,9403,6854,37010.9%18.6%

China, which is considered the growth engine for the world economy in the current environment, has dipped by 7% since April this year and gained only 4% since January 2003. The Chinese economy looks set to grow by a significant 8% in FY04. It continues its relentless focus on infrastructure development at break neck speed. But the Chinese indices don't seem to be too affected by this. At the same time, Hang Seng has risen by 40% since April this year.

Among the Asian countries, apart from India, Pakistan too has been among the top performers. The peace initiatives in the region seem to have had a positive effect on both the countries and they seem to have earned brownie points from investors (both foreign and domestic).

In the US, the tech wave is once again showing signs of catching up. The NASDAQ's up over 45% since January. The Dow too has not done too badly, considering that the US economy is not out of the blues as yet. In Europe, a developing country like Russia is the outperformer as compared to more developed Germany and UK. This is despite global investor scare over the government's take over of the country's largest corporate company.

So what does all of the above signify? To us, it looks as if the global investing community is increasingly looking at countries with the most growth potential. This is especially in an environment where the traditional heavyweights like US and Europe are grappling to find growth. So India, China (Hong Kong) and Russia (almost forgot - Pakistan) are in a way, enjoying the fruits of the developed markets underperformance.

But the question is, will this newfound love for potential continue, or will it take the next available flight back when the scenario improves back home? Keep a close eye on Uncle Sam's recovery path, for it may have the potential to spoil the domestic party. In the third quarter for instance, the US economy grew at a stellar rate of 8.2% buoyed by consumer spending. Considering the large trade and budget deficits post the three tax cuts in the last three years, there are fears that interest rates in the US could go up. This in turn, could lower the attractiveness of developing economies like India in terms of portfolio flows. Therefore, just backing on continued support from FIIs may not be the right strategy for a retail investor in India. There is lot more to it, as the recent 2QFY04 performance suggests.

What we are saying is, invest in equities based on your assumptions on the fundamental growth prospects of the Indian economy and don't get carried away by the FII flows and punter news. Stick to quality, think long term and stagger your investment strategy.

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