Mumbai: Stronger signs of a US recovery should provide a thrust to rising Indian stocks as they brighten up the prospects for exports and give an added push to robust growth in Asia's third largest economy that has been largely driven by domestic demand.

US factory activity in March hit its fastest pace in five-and-a-half years as manufacturing continued to lead the world's biggest economy out of its worst recession since the 1930s, reinforcing hopes for a sustained recovery.

This is good news for India where Trade Minister Anand Sharma last week announced a stimulus package of Rs6.25 billion (Dh516 million) for exports of 200 items such as garments, electronics, engineering and agrochemicals.

"India is looking very good and we have seen more and more interest in India," stock market guru Mark Mobius told CNBC TV18. "If we see faster action on part of the government in India on infrastructure and other investments, then we will see a lot of very good interest."

On track

The government has said it was on track to spend $500 billion (Dh1.8 trillion) over five years to 2012 to build roads, airports, ports, bridges and power plants.

India's exports grew for the fourth straight month in February, rising 34.8 per cent to $16.09 billion, after sliding for 13 months in a row before. Exports for April-February, the first 11 months of 2009-10, were down 11.3 per cent at $152.98 billion.

Manufacturing in India expanded for a 12th consecutive month in March, with the HSBC Markit Purchasing Managers' Index at 57.8. Although the reading was below 58.5 in February, a reading above 50 indicates expansion.

"The biggest danger to Indian economic growth in the coming months will be an inability to meet demand due to a lack of capacity," Robert Prior-Wandesforde, Singapore-based economist at HSBC, said in a report. "The central bank has plenty of catching up to do if it is to deal with the rapid escalation of price risks."

He said the survey showed a surge in input prices to a new series high, while manufacturers were becoming more willing to pass on some of these increases to consumers.

Maruti Suzuki, the country's largest maker of cars, said last week it was raising prices by up to Rs10,000 and Ford Motor's Indian unit said it would start a second production shift at its factory in Chennai on strong demand for its small car Figo.

The top-30 Sensex rose for the fifth successive quarter in January-March, thanks to a 6.7 per cent increase in March. The market has been helped by foreign portfolio inflows of $4.5 billion in 2010, with most of this coming last month after the budget.

Morgan Stanley strategist Jonathan Garner said in report the number of households earning $10,000 a year may more than triple to 356 million from 109 million in the largest developing nations of Brazil, Russia, India and China, or BRICs, citing researcher Euromonitor.

Rising foreign investment in the stock market has underpinned the rupee, which gained 2.7 per cent in March and 3.7 per cent in the past quarter. The rupee ended at 44.89/90 against the dollar last week, and Standard Chartered forecast the unit to strengthen to 42 by the end of the year.

On the back of a strong stock market and improving investor appetite, new share offerings are set to pick up.

 

The writer is a journalist based in India.