Japanese joining party after India heats upThe Indian stock market has exploded recently, with the benchmark Sensitive Index doubling in the past two years. And the resolution in mid-June of the family feud between the heirs to Reliance Group, the Indian conglomerate whose uncertain future had weighed down the market, has sent the Mumbai Sensex index to a new record. In late June, the index broke through the 7,000 mark for the first time and has now pushed past 7,300.
The general Indian economic growth story aside, the country's stocks have been supported by an avalanche of cash from retail investors worldwide who have become zealous about India.
Since 1996, HSBC Asset Management has run one of the oldest of the funds that concentrate exclusively on the country. Until December 2002, it was a modest $90 million fund. But it surged to $824 million the following year and to $2.59 billion by December 2004, thanks to a burst of money from European and American investors. The offshore fund, registered in Luxembourg, now stands at close to $3 billion, the largest India fund in the world.
"People are looking for growth opportunities, and India has been offering growth," said Sanjiv Duggal, chief investment officer for India at HSBC Asset Management. "On a midterm basis, you see reasonable growth from a GDP perspective, and India has globally competitive sectors and companies."
Some of the global investors' favorites include Infosys Technologies, a software and information-technology company; Reliance Group, a chemicals and energy conglomerate; and Oil&Natural Gas.
Recently, billions of dollars have cascaded into the Indian stock market from abroad; $6.6 billion in 2003 and $8.5 billion in 2004, Duggal said. So far this year, $5.1 billion has flowed into the Indian stock markets and the largest share has flowed into the Mumbai Stock Exchange, which was established in the late 19th century and is the oldest stock exchange in Asia.
The India story is the next big thing after China, with the same demographic momentum of a growing, young, tireless work force. It is also home to the highly adaptable software houses that are catering to global outsourcers.
As a result, India is getting a lot of attention. The Western media carry far more reporting on India than previously, Duggal said, and the reports tend to be more positive. They reflect a dynamism in India that is no longer so evident in the mature economies.
"What we see here generally is that there is no growth, no population growth, no economic growth" in Germany, said Werner Hedrich, director of research at Morningstar Deutschland in Munich. "Europe is growing 2 percent and if you are optimistic, it's growing by 3 to 4 percent," compared with the Indian growth rate of 6 percent to 7 percent annually, he said.
At this stage, the growth possibilities appear greater in India than in China, observers say.
"I guess China has already come to a stage where there has been significant growth. But India is still in the stage of picking up," said Amy Chow, marketing director at FirstState Investments in Hong Kong. Speaking of investors, she added, "They see India as China 10, 15 years ago."
Add to that the prospect of the potential for population growth in India, unshackled by the birth control policy in China, and the English-speaking population that can supply services and software work to the industrial world, leveraging its cheap labor in a different industrial area than China, which mainly supplies manufacturing labor.
While European and U.S. investors have enjoyed the boom over the past two years, the latest developed country to join the party is Japan, where India funds are flying off the shelves of brokerage firms.
When Nomura Asset Management started an Indian stock fund in mid-June, demand was so strong that it had to suspend sales after subscription reached ¥100 billion, or $900 million, in just one week. Since last fall, when Indian funds began to pop up, Japanese individual investors have poured a total of about ¥400 billion into the country's stock funds.
Masaya Kashioka, the senior manager for marketing at PCA Asset Management in Tokyo, said, "The Japanese market has been going through an adjustment, while the Indian shares have been clearly showing a movement."
In an example of India's widening appeal, FirstState is planning to offer its India funds to Hong Kong investors.
Still, analysts caution against investor euphoria. "What I am not sure is if the investing public has any idea about volatility," Hedrich said.
Duggal of HSBC Asset Management said that the Indian market appeared fully valued now after the recent run-up, with the shares at their highest forward price/earnings ratio in recent history.
"The market, we think, is fairly valued and from this point on, it will follow earnings growth," he said. "We are looking at 15 percent earnings growth per annum and on average that should be the return for the market."