{"id":641095,"date":"2013-02-04T07:30:53","date_gmt":"2013-02-04T12:30:53","guid":{"rendered":"http:\/\/blogs.reuters.com\/globalinvesting\/?p=8505"},"modified":"2013-02-04T07:30:53","modified_gmt":"2013-02-04T12:30:53","slug":"indian-markets-and-the-promise-of-reform","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/641095","title":{"rendered":"Indian markets and the promise of reform"},"content":{"rendered":"

What a difference a\u00a0few\u00a0months\u00a0have made for Indian markets.<\/p>\n

The rupee is 8 percent\u00a0up from\u00a0last summer’s\u00a0record lows. Foreigners have ploughed\u00a0$17 billion into Indian stocks and bonds\u00a0since Sept 2012 and\u00a0foreign ownership of Indian\u00a0shares\u00a0is at a record\u00a0high\u00a022.7\u00a0percent, Morgan Stanley reckons.\u00a0\u00a0And all it has taken to change the mood has been the announcement of a few reforms (allowing foreign direct investment into retail, some fuel and rail price hikes and raising FDI limits in some sectors). A controversial double taxation law has been pushed back.\u00a0 The government has sold some stakes in state-run companies (it offloaded 10 percent of Oil India last week, netting $585 million).\u00a0 If the measures continue, the central bank may cut interest rates further.<\/p>\n

Above all,\u00a0there have been\u00a0promises-a-plenty\u00a0on fiscal consolidation.<\/p>\n

The promises are not new. Only this time, investors appear to believe Finance Minister P. Chidambaram.<\/p>\n

Chidambaram who was on a four-city roadshow to promote India to investors, pledged in a Reuters interview <\/a>last week not to cross the “red line” of a 5.3 percent deficit for this year in the Feb 28 budget.\u00a0Standard Chartered, one of the banks that organised Chidambaram’s roadshow,\u00a0sent out a note entitled: “The finance minister means business”.<\/p>\n

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FM Chidambaram has gained market credibility on back of measures announced since Sept. 2012. ..if he follows through on these pledges….markets will have more reason to cheer.<\/em><\/p>\n<\/blockquote>\n

So what can be expected if the budget does deliver\u00a0the goods?\u00a0Assuming global central banks continue to gush liquidity, the Indian stock rally\u00a0might continue.\u00a0 Indian stocks\u00a0trade at 16 times forward earnings, slightly below their\u00a0historical\u00a0averages.\u00a0 The rupee too should rise further.\u00a0It has an implied yield of around 6 percent, \u00a0one of the highest in the world. And unlike many other emerging markets,\u00a0India won’t be averse to some appreciation from current levels of around 53. 15 per dollar. According to Arvind Mayaram, head of economic affairs at India’s finance ministry:<\/p>\n

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Once you see fiscal consolidation start to happen, you will see the rupee<\/em> strengthen further… the rupee\u00a0at 52-53 (per dollar) is good. It will be still competitive but imports will become cheaper and inflation will moderate.<\/em><\/p>\n<\/blockquote>\n

And what of\u00a0India’s woeful infrastructure?\u00a0\u00a0India’s pot-holed roads, power\u00a0cuts and clogged-up ports\u00a0will take years, if not decades, to fix. But\u00a0the government does\u00a0seem\u00a0keen\u00a0to\u00a0deal with the problem.\u00a0Mayaram,\u00a0in London\u00a0for a recent infrastructure roadshow, said in an interview that the government had fulfilled\u00a0targets for\u00a0 $500 billion infrastructure investments in the five years to 2012 and\u00a0\u00a0half of\u00a0this had come from the private sector.\u00a0Another $1\u00a0trillion is\u00a0planned by 2017, giving\u00a0an annual \u00a0investment rate of\u00a0around 38-40 percent of GDP, he said.<\/p>\n

All that is good. But elections loom in 2014 and the ruling Congress is likely to pressure Chidambaram to be generous to voters.\u00a0\u00a0UBS analyst Manik Narain says a lot of foreign cash has headed\u00a0\u00a0to India recently on the promise of yield and the premise that the inflows will be welcome (unlike in many Asian and Latin American countries, where governments are increasingly fearful of hot money). But he says the peak could be close if reforms are not quickly deepened:<\/p>\n

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Given how much pressure the Congress is under, I find it surprising the market is trading with so much optimism.\u00a0\u00a0The truth of the matter is that the\u00a0reform\u00a0steps India has taken are welcome\u00a0but they are really only baby steps. A sliver of reform is making India look attractive.<\/em><\/p>\n<\/blockquote>\n

\u00a0<\/em>The ball, as Chidambaram has acknowledged,\u00a0is firmly\u00a0in the Indian government’s court.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

What a difference a\u00a0few\u00a0months\u00a0have made for Indian markets. The rupee is 8 percent\u00a0up from\u00a0last summer’s\u00a0record lows. Foreigners have ploughed\u00a0$17 billion into Indian stocks and bonds\u00a0since Sept 2012 and\u00a0foreign ownership of Indian\u00a0shares\u00a0is at a record\u00a0high\u00a022.7\u00a0percent, Morgan Stanley reckons.\u00a0\u00a0And all it has taken to change the mood has been the announcement of a few reforms (allowing foreign […]<\/p>\n","protected":false},"author":7384,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-641095","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/641095","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/7384"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=641095"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/641095\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=641095"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=641095"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=641095"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}