The annual Economic Survey of the government on Thursday asked investors not to flock irrationally in buying and selling shares and asked policy-makers and regulators to stay alert to tackle price bubbles and frauds.
A slowdown in inflow of foreign funds compared with last year could hit the stock markets in the short term, but more portfolio investments could be expected from overseas as India’s economic growth is relatively better that other emerging markets, the survey says.
Policy initiatives should "transmit right signals unambiguously, the regulators need to remain proactive and vigilant to obviate the occurrence of any irregularities in the conduct of business in the market,” the survey added.
“Going forward despite the possible subdued global growth, the strong fundamentals of the Indian economy in tandem with higher growth would help in sustaining the interest of the domestic and foreign investors in the Indian market,” the survey said, while expressing its concern over the US sub-prime crisis resulting from risky home loans that went bad.
"There has been a renewed expansion of liquidity by these countries (US and other developed economies) and this may increase the capital inflows into India and other emerging markets. However, India's slower economic growth in the current fiscal, as compared to the past two years, might also have a temporary dampening effect on capital inflows,” the survey said.
“Individual investors need to take informed decisions and remain cautious," it said, pointing out that Indian stock prices as reflected in price-to-earning multiples were the highest among the emerging market economies such as South Korea, Thailand, Malaysia and Taiwan.
At current valuations, the ratio of India’s market capitalisation to the GDP is one of the highest at 150 per cent as against 137 for China and 128 for the US, the survey noted.
Indian companies have raised as much as Rs. 2,12,721 crore from the primary market in 2007. However, more than half of this, or Rs 1,11, 838 crore, was raised through private placement until November 2007. From the 100 initial public offers (IPOs) that entered the market in 2007, the corporates mopped up Rs 33,912 crore and an additional Rs 41,567 crore were raised through overseas issues in the form of ADRs (American depository receipts) or GDRs (global depository receipts).