Indian market optimistic as signs of revival grow

Mumbai: With foreign funds continuing to pump money into Indian shares and data showing factory activity was picking up in both China and India, Asia's second and third largest economies respectively, the outlook remains firmly bullish for the near term.

Market pundits believe it was only a matter of time before brokerages and investment houses begin to upgrade earnings forecasts for Indian companies, a move that would prove the spectacular run-up in value of blue-chip stocks was not a flash in the pan.

Prime Minister Manmohan Singh's coalition government, which was re-elected with a stronger mandate last month, has said it would pursue liberal reforms in its annual budget on July 3 to bring back growth trajectory to its nine per cent annual pace.

"The attractiveness of Indian equities has significantly improved following the elections," JP Morgan, which manages just under $1 billion (Dh3.67 billion) in Indian assets, said last week.

"Most partners in the existing coalition are more or less pro-reforms. This bodes well for what this government could deliver over the next five years," it said in a note to clients.

After dumping over $2 billion of Indian shares in the first 2-1/2 months of this year, foreign funds have bought $7.7 billion since mid-March. The inflow has boosted the top-30 Sensex over 90 per cent in the past three months.

Many shares have vaulted much more. Shares of Larsen & Toubro Ltd, India's biggest heavy engineering and construction company, have almost trebled in three months as government economic stimulus packages began to revive demand while pledges to increase spending on infrastructure are expected to boost the company's order book.

Reliance Industries Ltd, which controls the world's largest oil refining complex at Jamnagar in Gujarat, has seen its shares more than doubling since early March, after it began pumping natural gas from its massive fields in the Krishna Godavari basin in April.

The two stocks are among the top-five holdings of JP Morgan's largest India fund, which also include Oil and Natural Gas Corp, Bharti Airtel and Bharat Heavy Electrictals.

"We would expect international investors to become more positive about Indian equities," the US fund house said. "Investors will now have improved growth visibility and will likely factor that in the prices they are prepared to pay for stocks."

India's industrial production unexpectedly rose for the first time in three months in April, data showed on Friday, indicating stimulus measures had turned the tide for the $1.3-trillion economy that had been slowing following the global financial crisis.

Output at factories, utilities and mines grew 1.4 per cent from a year earlier after a revised 0.75 per cent drop in March, compared with market expectations for a 0.1-0.2 per cent contraction.

Manufacturing, which contributes about 80 per cent of total output, grew 0.7 per cent from a year earlier after a decline of 1.6 per cent in the previous month. Mining climbed 3.8 per cent and electricity rose 7.1 per cent, accelerating from March.

Lower borrowing costs, tax cuts on consumer products and higher spending by the government and rising disposable income are bolstering domestic demand even as exports plunge.

Coal production in April rose 13.2 per cent, more than twice the pace in March, while the growth in cement output accelerated to 11.7 per cent.

- Geetha Bhaskaran is a journalist based in India