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India story is intact

Between Thursday and Friday, the markets have rebounded by a massive 954 points, writes Gaurav Choudhury.

india Updated: Jun 17, 2006 01:53 IST

The 1000-point rebound has been as sudden as the precipitous fall. The relief rally in stock markets continued on Friday on global cues with the Sensex breaching the psychological 10,000 mark during a massive intra-day rally of 455 points before settling down at 9884.51 — up by 339 points. Between Thursday and Friday, the markets have rebounded by a massive 954 points, shaving off close to 10 per cent of the erosion since May 11.

Analysts say that Indian markets reflect the overall global scenario with FIIs taking aggressive positions in all major emerging economies on Friday. The FII rally was triggered by reports that Japan's central bank has deferred a decision to hike interest rates. There were also expectations that the US Fed rates may remain untouched in the short term.

Yesterday's 615-point rally was the biggest-ever single-day gain. Marketmen appeared bullish on the long-term India story though global factors are likely to remain the key influence on India's equity returns over the next 12 months.

"Among the factors that we think will be most critical are US economic growth/inflation, crude oil prices and emerging market valuations. India-centric factors seem less critical but include FDI, capital spending, equity supply, government policy, politics, central bank action and domestic risk appetite," said Ridham Desai of Morgan Stanley. Significantly, Indian markets have returned the largest compounded annual growth rates (CAGR) among the emerging Asian economies since 2003. Data shows while the CAGR in Indian markets since April 2003 was 45.6 per cent, Korea was distant second with 35.9 per cent. Indonesia (34.7 per cent), Philippines (25.0 per cent), Thailand (25 per cent), Singapore (24.7 per cent), Hong Kong (20.3 per cent), Taiwan (17.1 per cent) and Malaysia (14.1 per cent) were far behind. "We are not downgrading our earnings estimates for the BSE-30 as the beacon of growth still beckons," said Vasudeo Joshi, head of institutional equity research of Man Financial.

Emerging economies, particularly in Asia, have witnessed a large withdrawal of funds by foreign portfolio investors in recent days. During last week, foreigners sold $2.2 billion dollars with the biggest fund outflow taking place from Taiwan where FIIs withdrew $1.4 billion. Interestingly, India was the only economy where FIIs were net buyers to the tune of $391 million during the week.

The volatility in stock markets across emerging economies also displayed a similar pattern with all the major indices registering a sharp drop. During the last week, the Taiwanese stock index - TWSE - registered the strongest drop of 7.4 per cent followed by SET of Thailand (7.2 per cent), PCOMP of Philippines (6.3 per cent) and Sensex of India by 6.1 per cent.