Reforms Fuel Indian Markets Rally

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on Sep 25, 2012

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Indian markets rallied significantly last week after the government announced an unexpectedly bold series of economic reforms. India’s easing restrictions on overseas investment in retail and aviation, and renewed interest from foreign institutional investors (FII) in buying local equities saw the Asian stock markets continuing their upbeat trend for another consecutive week.

Last week, and most noticeably, on Friday (September 21), Indian shares showed an upward climb by hitting 14-month highs. As investors took some profits off the table following the steep gains, market activity on Monday (September 24) was not as strong as during the previous session. Weak global cues on concerns about Chinese growth and lingering worries about Europe’s debt crisis also resulted in lacklustre trading following last week’s strong rally. The benchmark Sensex index of leading Asian equities closed down about 80 points or 0.42 per cent at 18,673, while the broader Nifty index fell by 22 points or 0.38 per cent to 5,670. But although, Indian shares have started the week with modest losses, the Asian equities market stayed on the up. Since Indian Prime Minister Manmohan Singh announced the economic reforms on September 14, Sensex has gone up 7 per cent. The index has also risen 21 per cent since January, which makes it India’s best performing major stock market in the world this year.

!m[](/uploads/story/454/thumbs/pic1_inline.png)Chief executive officer of financial services firm Religare Capital Markets Ltd, Traun Kataris, said: “Investors have been waiting for bold reforms, which are now coming fast and furious. This also happened when the Fed and the ECB announced their liquidity programmes. All the money was sitting on the sidelines waiting to come in and that has resulted in this aggressive rally.”

To date, the Indian stock markets have responded to the newly-introduced reforms with improved performance. Investors have also proved enthusiastic, increasing their positions in Indian equities. But despite the strong Asian equities rally and boosted investors confidence, many traders are conscious of a possible change in the shares’ movement. Analysts reminded that India’s markets are notoriously changeable, referring to a previous rally this spring which quickly turned round in the face of government missteps and grim economic developments in North America and the Eurozone. Accordingly, market participants should remain cautious when trading Indian shares, analysts say.

Hugh Young, managing director of Aberdeen Asset Management Asia, a fund manager with roughly $10 billion (£6.1 billion) invested in Indian equities told The Financial Times: “We have become profound cynics on India. We hope it’s all true, but let’s wait to see what actually happens on the ground … having been investing in India for 30 years, one learns the value of having a very thick hide.”

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