By Pooja Thakur/Bloomberg
Mumbai: India became the third emerging stock market after China and Russia to surpass $1 trillion (Rs40 trillion) in value, helped by the fastest economic growth in 60 years, a strengthening currency and overseas investment.
The rupee, Asia’s best performer this year, advanced to a nine-year high on Tuesday, 29 May 2007, helping push the market’s value to $1 trillion. It closed on Wednesday at Rs 40.87.
The country’s economic growth, averaging 8.6% in the past four years, helped spur earnings growth of as much as 35% for the year ended 31 March, according to Ratnesh Kumar, Citigroup Inc.’s Mumbai-based research head. Overseas funds are also supporting the stock market after buying a net $3.76 billion of equities this year, capital market regulator the Securities and Exchange Board of India (Sebi) said 28 May.
“Profit growth at Indian companies has been phenomenal,” said Ashish Goyal, who helps manage about $20 billion in Asian stocks at Prudential Asset Management (HK) Ltd. “You can’t ignore a market that delivers such fantastic earnings.”
The Sensex has jumped 34% in the past year and the rupee has strengthened 12%.
Great expectations: Finance minister P. Chidambaram has said the nation’s gross domestic product is likely to surpass $1 trillion next year.
The Sensex is valued at 23 times reported earnings, the highest in Asia after China and Japan. That’s more than the benchmark’s five-year average of about 17 times profit.
A combined $10 billion of new share sales planned by ICICI Bank Ltd, Tata Steel Ltd and DLF Ltd will help boost the country’s stock market value further.
ICICI Bank, India’s largest lender by market value, is raising $5 billion in the country’s biggest share sale. Tata Steel chairman Ratan Tata is selling stock to help fund his $12 billion purchase of London-based Corus Group Plc., creating the world’s sixth-largest steel maker. DLF, a New Delhi-based property developer, plans to sell at least $2.1 billion of shares.
The offers are dwarfed by Commercial Bank of China Ltd’s $22 billion stock sale, the world’s largest initial public offering, and OAO Rosneft’s $10.6 billion sale in Russia. China’s market value has doubled in the past year to $2.47 trillion. Russia’s market value dipped below $1 trillion in May to $949 billion on 29 May.
Reliance Industries Ltd, India’s largest stock, is ranked 137th globally, compared with seventh and 12th for the biggest companies in China and Russia.
Long way to go
“Even as we reach $1 trillion, the size of our companies is still small in comparison to global peers,” said Rajiv Anand, who manages $3.5 billion in assets at Standard Chartered Mutual Fund in Mumbai. “We have a long way to go to achieve scale.”
Rising earnings are leading some Indian companies to expand overseas. Sun Pharmaceutical Industries Ltd, which is headed by billionaire Dilip Shanghvi, on 21 May agreed to spend $454 million in cash to buy an unprofitable Israeli rival and repay its creditors. Shares of Sun, India’s biggest drug maker, have soared six-fold in the past four years.
Record profit at billionaire Kumar Mangalam Birla’s Hindalco Industries Ltd, India’s biggest aluminium producer, helped the company pay more than $3.4 billion to acquire Novelis Inc. of Atlanta. Birla was ranked 86th on Forbes’ list of the world’s richest people in 2006, after his wealth almost doubled in a year.
Founders of companies included in the Bombay Stock Exchange’s BSE 200 Index own about 73% of the benchmark’s combined market value, according to data on the exchange’s website. Overseas investors own about 21% and local mutual funds 3.7%, according to the exchange.
Bharti Airtel Ltd, the best-performing stock in the Sensex in the past five years, has jumped 30 times in value. India’s largest mobile-phone company posted a 12th straight quarter of record profit as it added new customers in the world’s fastest-growing wireless market.
Reliance climbed tenfold in the past five years even as the company was split last year to settle a dispute between the Ambani brothers.
Finance minister P. Chidambaram said in March the nation’s gross domestic product is likely to surpass $1 trillion next year, making it the third Asian economy to do so.
“Reaching $1 trillion is a sentiment booster,” said Chakri Lokapriya, who manages $425 million of stocks in India, Brazil, Russia and China at BNP Paribas Asset Management UK Ltd. “It validates the India story of robust growth.”