The Telegraph
Since 1st March, 1999
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9067 in Mumbai and 7% in Delhi

Dec. 9: In Mumbai, Christmas celebrations began early, and the signal from Delhi: keep celebrating in the New Year.

For the first time, the Bombay Stock Exchange sensitive index ended the day above 9000, as euphoric market players looked at 10000, 12000, even 15000.

The sensex, which tracks market movement, closed at the all-time record of 9067.28, drawing strength from the healthy picture of the economy painted by the finance minister and court clearance for the scheme to split Reliance Industries.

P. Chidambaram announced in Delhi that he was optimistic the economy would outperform the 8 per cent growth posted in the first half of 2004-05.

“I am optimistic that second-half performance would be even better (than the first). All in all, we are happy that the mid-year review has found this to be a good year,” he told reporters after tabling the mid-year economic review in Parliament.

The review was extra-cautious in predicting an over 7 per cent growth for the year.

Institutions such as the Reserve Bank have forecast a 7.5 per cent growth in the gross domestic product.

“Strong consumer demand spurred by cheap credit has been boosting sales across the country, spurring growth,” explained S.P. Gupta, a former member of the Planning Commission.

Chidambaram’s review projected GDP growth of 7 per cent on the back of a 10 per cent growth in the service and manufacturing sectors. The agriculture growth forecast is 3 per cent.

Gupta and other economists warned that growth fuelled by cheap credit might not be sustainable in the long run.

“There has to be real tangible investment on the ground to sustain growth ' foreign investment inflows have not been coming in at the rate they should have, capital goods sales (the index of a growing economy) have been faltering,” Gupta said.

The review admitted weaknesses in key areas like mining, power generation and petroleum.

Critics see this as the main drawback in the growth story, besides infrastructure bottlenecks and a widening deficit ' the gap between government expenditure and income.

The review warns that the “expenditure budget is expected to come under pressure on account of increased requirement of government-funded supply of foodgrain for employment guarantee programme and the Sampoorna Gramin Rozgar Yojna”.

Warnings about the government’s deficit have been flashed periodically and economists’ scepticism about sustainable growth is hardly new, but the economy has continued to display signs of good health.

The stock market was hardly ready to hear words of caution as the sensex gained 161 from its previous close. Investor wealth, measured by market capitalisation, soared by around Rs 36,000 crore to Rs 24,05,029 crore.

Since November 1, the sensex has risen by over 1123 points on a buying binge led by foreign institutional investors and mutual funds.

D.D. Sharma, of the brokerage house AnandRathi, is almost certain that 10000 will be scaled in 2006. “Why 10,000, it may even touch 12000 in 2006. By 2007, the index could well touch 15000. We may see intermittent corrections, but the long-term outlook remains bullish,” he said.

“We are at a new high,” declared Arun Kejriwal of KRIS, a brokerage. He expected the euphoric mood to carry over into next week, but advised retail investors to be extremely cautious.

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