The Telegraph
Since 1st March, 1999
Email This Page
The Goldilocks touch
Stocks scale a peak a week

Mumbai, Oct. 15: The sensex burst through 19000 today — and appeared to underscore the fact that India is now one of several Goldilocks economies that are “neither too hot, not too cold”.

The $900-billion Indian economy is just right — as the little girl found the plate of porridge when she stumbled into the bears’ home in the woods.

The theory is essentially American, says PricewaterhouseCoopers in its Global Survey of 1,100 chief executives that it released recently. But it is a phenomenon that has assumed an “increasingly global scope”, says the consultancy which has seen growing interest in countries like India, Turkey, Mexico, Indonesia and Vietnam.

It is this Goldilocks phenomenon that has started to attract the carpetbaggers and dealmakers of the world who are funnelling more and more funds into India. They are all betting that the Indian stock market — which has grown almost 40 per cent this year — still has sufficient upside left for them to make some more money.

In a survey released today, ING Asia Pacific said investor sentiment was the most optimistic in India followed by China. “In India, almost 80 per cent believe that the overall economic situation has improved in the past three months and will continue to improve in the next three months,” the report said.

With a growth rate that is comfortably placed at around 9 per cent and inflation down to 3.26 per cent, the economy seems to have struck a fine balance between growth and prices.

It was not always this way: exactly a year ago, Reserve Bank governor Y.V. Reddy had warned of an overheating economy. Some of that steam seems to have dissipated after a good monsoon and forecasts of a fairly robust farm sector growth this year.

So, it is unlikely that Reddy will raise a similar warning signal on October 30 when he reviews the monetary policy.

The sensex has scaled five peaks this year — the same as in 2006 — starting with 15000 in early July. Since then, four others have fallen largely because of the $16.73 billion that foreign institutional investors have pumped into Indian equities since January. From 18000 last week, the jump to 19000 took only four trading days.

Interestingly, more than $10 billion has come in since July 6, the day sensex hit the 15000 mark. In 2005, foreign investors had invested around $10.70 billion. The FIIs have invested in just three months since July what they had put in an entire year back in 2005.

Significantly, all the sensex milestones have come in the second half. Experts say many foreign investors were underweight on India during the first six months. The situation changed as the economy continued to grow, inflation cooled and the threat of rising interest rates started to recede.

Several other factors have driven the market: strong industrial growth in August after the blip in July, the anticipation of robust results in the second quarter, and the receding fear of an early election.

“There are many foreign investors who have missed the Indian bus. They have huge liquidity (money) and are now investing aggressively,” said a research head of a foreign company.

However, there are some observers who are advising caution. “The current rally is illogical and exuberant. The fact is that the nuclear deal, which is good for the country, is not happening. If this is taken as a positive by the market, it means disaster for all of us. It is only liquidity that is driving the markets,” said Arun Kejriwal, director, Kejriwal Research and Investment Services, an advisory firm.

Finance minister P. Chidambaram said much the same thing last Friday — and the sensex tumbled all of 500 points. But it picked itself up on Monday and resumed its heady climb.

Email bomb scare

Police stepped up security at the Bombay Stock Exchange and the National Stock Exchange today after an anonymous email to an official at the NSE threatened to blow them up.

Email This Page