In the aftermath of the collapse of the US investment bank Lehman Brothers Holdings Inc. and the unprecedented credit crunch that gripped the global financial system, no one expected the economy and markets to go the way they did in the first half of this fiscal year. The bellwether equity index, the Sensex, has more than doubled in value in the preceding six months, small- and mid-cap stocks climbed even further and companies are rushing to raise capital through share sales and private placements.
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Foreign investors and local institutions are pouring in money as they perceive the victory of the United Progressive Alliance government as a boost for reforms and economic growth. Indeed, India was one among the few $1 trillionplus economies that have expanded, albeit at a slower rate, in the past one year. Others such as France, Germany and Japan are just emerging from recession. The fiscal stimulus package at the end of the last fiscal year helped; manufacturing made a comeback and industrial output grew during the September quarter as demand revived during this period, especially in key sectors such as automobiles and cement. What was also of help was a benign inflation that kept interest rates under check.
Company earnings in the first quarter of fiscal 2010 surprised the street, and the second quarter is expected to be in line with the preceding one. That will provide guidance on how the markets and economy will behave for the rest of the year.
Graphics by Yogesh Kumar / Mint