Unless you are Indian, chances are you haven’t been paying much attention to what’s going on in Indian markets of late. Russia’s troubles, oil’s plunge, China’s slowdown or the newly back-on-track American economy might have gobbled up too much of your attention. While the world was busy awaiting ECB’s stimulus, stock markets in India were on the rise. And they still are. Bombay Stock Exchange, better known as Sensex (for sensitive index), rose by 30% over 2014 and continues to reach record highs in 2015.
Why the rise?
After 10 years under a weak coalition, the erstwhile opposition party BJP won a landslide victory in mid-2014, led by their Prime Ministerial candidate Narendra Modi. Modi, known for his pro-business stance, has managed to gain investors’ confidence in a country that was seeing slowing GDP growth rates. Promises of reform also increased inflows from foreign institutional investment to USD 26 billion, especially in securities. While the new government has performed well on some quarters and not so well on others, Indian investors continue to pin their hopes on Modi.
Gold Import Ban
In a desperate bid to bring down the current account deficit (CAD), the government had to impose restrictions on gold import in India in 2013. The new government hiked gold import duties to further deter import of gold. This helped in narrowing the CAD and consequently improving market conditions.
2014 saw oil prices drop to 5 year lows. India imports more than 70% of its crude oil, and the fall reduced not only India’s oil import bill but also the money spent by the government on subsidies. It spurred industrial growth and reduced inflation rates for the better. The oil glut looks like it’s here to stay, and so it’s likely to continue to work in India’s favour.
Positive US Outlook
Improved economic conditions in the US was good news for India’s software and pharmaceutical companies as America happens to be their largest export destination. Close to 40% of US mutual-fund flows into ex-Japan stocks in 2014 have gone into India, and mainly into India’s information technology stocks.
Which Direction to Look to?
As of now there seems to be only one overall direction that Sensex is moving in – up. The high gains amid some volatility are being interpreted as signs of a bubble market that might burst without warning. However, GDP growth data has shown performance slightly better than expected, reinforcing the belief in an improving Indian economy. As 2015 continues to be an eventful year for global finance, the verdict is still out on future of stocks in India.
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