Investors Return: India is back on track

Stocks are climbing as investors pour funds back into the local market, betting companies such as Reliance Communications Ltd. and Grasim Industries Ltd. will benefit from accelerating economic growth. Stock sales by offshore investors in May triggered a monthlong slide in the market that wiped $259 billion off the value of the country's listed companies.

Indian stocks dropped after investors sold shares on concern higher interest rates would stifle economic growth and oil prices at records would add to corporate energy costs and crimp consumer spending.
Those concerns were allayed after the U.S. Federal Reserve ended a two-year streak of interest-rate increases and oil prices dropped 20% from record highs set in July.

Overseas investors are looking to benefit from India's relatively rapid growth. Last year they ploughed a record $10.7 billion into the local market and this year's net purchases total $5.37 billion. Since June 14, they've bought local shares worth $2.77 billion, surpassing the amount they sold during the rout. Corporate earnings are expected to grow at between 15% and 20% so we can expect similar returns for the stock market.

"India is a great long-term story, it's a story about strong domestic demand. Corporate earnings are expected to grow at between 15% and 20% so we can expect similar returns for the stock market."

India's Prime Minister Manmohan Singh

Growth Forecast

Singh yesterday (Thursday 12th) raised the government's forecast for growth in Asia's fourth-largest economy to 8.5%, following expansion of more than 8% annually since 2003.
India's $775 billion economy grew 8.9% from a year earlier in the three months ended June 30, a pace of expansion second only to China among the world's 20 biggest economies. The U.S., the world's largest economy, grew 3.5% and Japan, Asia's biggest, reported a 2.5% rate.

"The process of growth under way in India is now much more sustainable than ever before. We are aware that to sustain the growth momentum, we need to do much more in infrastructure."

India's Prime Minister Manmohan Singh

Nine out of 11 indexes on the Bombay Stock Exchange rose today, with technology, banking and consumer companies leading the advance. The stock market recovery is spurring companies to sell shares.

Local investors are contributing to the market's gains as well. Domestic funds remained buyers of stock during the slump, purchasing shares worth $1.12 billion from May 10 to June 14. Since the low in June they bought $1.78 billion worth of stock.