New Delhi: India’s stock market has rocketed nearly 3,000 points in three hectic weeks to hit record highs and analysts say the bull run has further to go.
Overseas investors are expected to keep pumping money into Indian stocks, drawn by an economy growing by 9%, a rising rupee that is boosting returns and a desire to cut exposure to US subprime-driven worries.
India’s benchmark Bombay Stock Exchange Sensitive Index, or Sensex, closed above the key 18,000-point level for the first time on Tuesday, propelled by heavy foreign inflows and expectations of a strong quarterly earnings season that kicks off Thursday with outsourcing giant Infosys.
India “is the best bull market in Asia,” said Chris Wood, global strategist at brokerage CLSA, which has a long-term Sensex target of 40,000.
Analysts are looking for a protracted rally as companies dealing in energy, commodities, finance, infrastructure and consumer goods benefit from broad-based growth.
“India is at an inflexion point, there is a re-rating of the market,” said Amitabh Chakraborty, equities chief at Mumbai’s Religare Securities, who dismisses talk of a “bubble.”
An early election precipitated by a row between the ruling Congress and its Communist allies over a nuclear energy deal with the United States would cause the market to stumble “but India is a growth story,” said Chakraborty.
The market charge has been led by record foreign fund inflows of nearly $15 billion this year, beating the previous best of $10.7 billion in calendar 2005.
$5 billion has come in during the past three weeks since the US Federal Reserve delivered a surprise 50 basis point interest rate cut to ease credit stress threatening the world’s biggest economy.
Since then, the Sensex has climbed by 18%, bringing its rise since the start of the year to more than 32%. Typically, when the Fed lowers rates, investors start looking for higher returns in emerging markets.
“It’s basically a liquidity-driven market, that’s why it’s moving this fast,” said Chakraborty, who sees the Sensex at 19,000 by December, 14,000 by next March and 21,000 by December 2008.
“Over a three-year horizon, we see a 30,000 target as very believable,” he said.
Merrill Lynch has said Asian markets, including India, could see a correction this month but it will be limited by “large money waiting on (the) sidelines.”
“We might see some consolidation but I don’t think there is an event out there that will derail the market. The economic fundamentals are sound,” said Andrew Holland, strategic investment managing director at Merrill Lynch in India.
Investor bullishness on India has been boosted by the view it should escape major fallout from any world slowdown due to its still largely insulated economy.
“The strength of domestic demand is expected to keep the Indian economy on a relatively high growth trajectory,” despite a riskier global environment, said Subir Gokarn, Standard and Poor’s Asia Pacific chief economist.
India logged first-quarter (April-June) growth of 9.3%- the world’s fastest for a major economy after China.
Indian stocks are trading at an average 20 times current earnings -- a common measure of share value -- versus a long-term average of 18.4. That compares with 15 times current earnings for the United States.
Investors are coming round to the view that emerging markets “can trade for quite some time at a substantial premium to developed markets,” said Michael Hartnett, Merrill Lynch’s global emerging market equity strategist.