Mumbai: Foreign investors are again flocking to Indian stock markets, drawn by the nation's rapid pace of economic expansion and the brightening prospects for stronger returns than in the developed countries where growth is still slow.
Industrial output in January grew at an annual 16.7 per cent, in line with market expectations and slightly off a record 17.6 per cent jump in December, indicating a robust pick-up in consumer spending was maintaining momentum. Manufacturing production gained 17.9 per cent in January while mining increased 14.6 per cent and electricity output rose 5.6 per cent.
After the official data was released on Friday, Kaushik Basu, the chief economic adviser to the finance ministry, said gross domestic product growth in the March quarter would reach 8.5 per cent.
A private survey by HSBC and Markit had earlier showed that India's manufacturing output climbed the most in 1-1/2 years in February, reinforcing the growth trajectory was firmly on the rise, and fund managers are taking notice.
"If we were to make one long-term bet, we would make it on India rather than China," said Stephen Dover, who oversees $25 billion (Dh91.80 billion) as managing director and international chief investment officer for Franklin Templeton Investments' Local Asset Management groups.
"India is, in my opinion, still quite underinvested. India has the opportunity for some of that growth that China has had and the difference is that investors can participate in that growth," he told reporters in Singapore last week.
Favourable demographics can boost consumption and sustain faster growth in India, Dover said. Finance ministry estimates show about 150 million Indians are projected to join the workforce during the next decade as 440 million people are currently under the age of 18.
In a sign of how companies see the emerging picture, Honda Motor Comapny said last week it would invest Rs8.9 billion to build a second motorcycle plant in India as demand was expected to exceed the world's biggest bike maker's capacity in the country.
Another reason behind the push to India was the country's freer price clearing and exchange rate. "For investors really looking for opportunities, the footnote is on India," he said.
Foreign funds have ploughed more than $2 billion into Indian stocks over eight sessions through March 10, data from the Securities and Exchange Board of India. The inflow helped lift the top-30 Sensex about one percent last week for its fifth straight weekly rise — the longest since June last year
Goldman Sachs has recommended that investors buy Asian stocks outside Japan before the rally picks up steam.
"By the time all the lights turn green, the race will already be well under way," analysts led by Timothy Moe at the US investment bank wrote in a report. "Sentiment and valuation will improve as the year progresses, and we would prefer to be early."
Forecast
Goldman has forecast Asian corporate earnings growth will reach 30 per cent in 2010 and 21 per cent in 2011.
"We view the risk/reward balance very positively from a strategic perspective," they wrote.
The risk to the Indian stocks rally could come from an expected increase in borrowing costs at the central bank's monetary policy review on April 20, a move that will slow consumer demand. Also a worry is the possibility of more stimulus rollbacks that could hit factory output.
A clearer indication of when the Reserve Bank of India will tighten policy would emerge when the government releases February inflation data tomorrow. It is widely expected the figure will touch a 16-month high of 9.7 per cent, with weekly food inflation running at around 18 per cent.
The writer is a journalist based in India.
