KEY POINTS:
One year ago the world's top finance companies had made up their mind about India: go underweight, they advised. After a fabulous year they reckoned it was a safe bet that the Indian market would be a bit short of breath and need time to recoup.
Anyone who
took that advice had to come scrambling back in a hurry. India defied the odds and the stock market's inflexible laws of gravity. Starting out at around 14,000 in January the market soared to just over 20,000 last Friday.
To put that in perspective, the market has doubled in two years and moved up an astounding 604 per cent in the past five years.
"The spurt to 20,000 in a comparatively short time reflects the attraction of the India growth story to investors,"says Deepak Lalwani, director, Astaire & Partners, a London-based brokerage house.
As the year draws to a close, the Indian economy is still roaring ahead at a speed that would have been unbelievable three or four years ago and the stock market is reflecting the boom town mood. Consider what happened to Edelweiss Capital, a highly rated Mumbai-based brokerage firm: it listed on December 12 at Rs 825 ($27.5) and soared to Rs 1472 by Friday evening. That is about a 75 per cent jump in two days.
Or look at Kolte-Patil Developers, a mid-sized Mumbai builder that made a sparkling debut on the Bombay Stock Exchange on December 13. By the next evening its price had gone from Rs 145 to Rs 216.
The Gold Rush is drawing new players from around the world. One such is Bahrain-based bank Gulf Finance House which last week signed a preliminary agreement to build a US$10-billion ($13 billion) Chinese-style Special Economic Zone in the western Indian state of Maharashtra. Other Arab investors, who are usually wary of India's bureaucratic systems, are also scouting around in different parts of the country.
But the "India Story" is looking very different from what it did a year ago. The new stars in the firmament are the real estate czars and infrastructure companies that are building roads and airports and the steel and cement companies that make the raw material for their activities. Then, there are also the brokerage houses like Edelweiss that are reaping the benefits of the stock market boom.
By contrast, after almost a decade at the top, India infotech companies and pharma companies have fallen from grace. The infotech companies have been hit by the rising rupee that has shaved their margins and the pharma companies are facing tough competition in foreign markets.
Will the good times keep rolling in 2008? Can India go into a non-stop growth cycle for the next 20 years like China?
That's a much tougher question to answer. But every industry from steel and cement to hotels and private hospitals is booming and new projects are sprouting all over the country. The result is that gigantic investments are taking place and their impact will start being felt next year.
India's cement companies, which produce about 180 million tonnes annually, plan to raise production by between 80 million tonnes and 100 million tonnes by 2010 and the new capacity will start coming online next year. Huge steel plants are under construction and production may almost double in three years.
"There is a lot of new capacity going in. And we are seeing it at a global scale," says Marut Sengupta, chief economist, Confederation of Indian Industry.
Big investments are being made in the auto industry and many projects like the Tata small car - set to retail for US$2500 - will be on the road by next year. All the top auto companies are building new plants and Eicher Motors tied up last week with Volvo to make trucks. The British newspapers reported on Sunday that India's Tata Group is set to clinch a deal to buy the Jaguar marque.
Turn to the hotel industry. Anyone who has tried to get a room in an Indian hotel in the last year will know it is almost impossible if you don't book weeks in advance. The result is that every real estate developer is now building hotels and scouring the globe for partners in the industry. Alternatively, there's DLF, the country's biggest developer, which flexed its newfound financial muscle and bought the hyper-luxury Aman Resorts a few weeks ago.
How many hotels do cities like Delhi and Mumbai need? In Delhi, about 38 new hotels are in various stages of construction. Will that result in a glut? We'll probably find out about two years from now.
All this is taking place in a tough domestic economic environment which was why many analysts weren't expecting 2007 to be a vintage year in terms of economic growth. The Reserve Bank of India stepped in early and has been aggressively raising interest rates to tame inflation.
Also, the RBI let the rupee rise, hitting exporters and the software industry. The garment export sector is reeling from the impact of the rising rupee and amid all this economic euphoria thousands of workers have been thrown out of jobs.
But that hasn't stopped other booming sunrise industries like telecommunications - the posterboy for the Indian industry. Slightly over 8 million new phone connections are being sold every month. India's telecom sector is now shooting ahead of its targets and is already past the 250 million connections mark.
As the year comes to an end, there are sceptics, especially on the stock market front. Some leading players like Sanjiv Duggal of HSBC Asset Management, India, are once again predicting that the market needs a breather and that it is time to head for the exits. Duggal has been followed by Bill Barbour of Deutsche Asset Management, who has reasonably pointed out that the good times can't last forever.
One way or another, these are uncertain times around the world. The US rate cut in October brought huge amounts of money flooding into the country. Most investors are still reckoning that India is going to be one of the nations least hit by any US downturn because it is still a very closed economy - its exports make up less than 15 per cent of its GDP.
Will the bulls be stampeding at this time next year? Conventional wisdom would say no but as this year has shown - it is best to be prepared for the unexpected.
